RBA Update - 20 May 2025

The Board decided to lower the cash rate target by 25 basis points to 3.85%, citing moderating inflation, which has fallen to 2.4 per cent headline and 2.9 per cent trimmed mean, within the 2–3 per cent target band, driven by higher interest rates balancing demand and supply.

Despite a recovery in domestic demand and real household incomes, global economic uncertainties, including rising tariffs and geopolitical tensions, are expected to dampen growth, employment, and inflation in Australia, with increased financial market volatility adding to the uncertainty. Labour market conditions remain tight, with high unit labour costs and subdued productivity growth, while domestic consumption growth is slower than anticipated.

The Board views the risks to inflation as more balanced and considers the rate cut appropriate to make monetary policy less restrictive, while remaining vigilant to global and domestic developments, prioritizing low and stable inflation and full employment.

Key Findings:

• Inflation within 2–3% target band.

• Global uncertainties impact economic outlook.

• Domestic demand recovery slower than expected.

• Labour market remains tight, with unit costs high.