Reserve Bank Delivers Third Interest Rate Cut of 2025, Bringing Cash Rate to 3.6%

Strategic Insights -

The Reserve Bank of Australia (RBA) has delivered its third interest rate cut of 2025, with a 0.25 percentage point reduction at its August board meeting, taking the cash rate to 3.6 per cent for the first time since April 2023. This decision had been widely anticipated by financial markets and economists after the surprise decision to hold rates steady in July. The move was a unanimous decision by the RBA board, which had been divided last month.

Key Takeaways:

  • The RBA has delivered its third interest rate cut of 2025, with a 0.25 percentage point reduction at its August board meeting, taking the cash rate to 3.6 per cent for the first time since April 2023.
  • The decision had been widely anticipated by financial markets and economists after the surprise decision to hold rates steady in July.
  • The RBA governor, Michele Bullock, indicated that the board was prepared to cut interest rates further if necessary, with forecasts suggesting that underlying inflation will continue to moderate to around the midpoint of the 2-3 per cent range.
  • The central bank has downgraded its growth forecasts, expecting gross domestic product (GDP) to expand 1.6 per cent over the year to June, and GDP growth to pick up to 1.7 per cent by the end of the year.
  • Treasurer Jim Chalmers described the decision as a "very welcome relief for millions of Australians," and noted that it reflects the substantial and sustained progress made on inflation in a volatile and uncertain global environment.
  • Cash rate at 3.6pc, further rate cuts expected, with Betashares chief economist David Bassanese forecasting further interest rate cuts, with the next easing more likely in November.
  • Some lenders have confirmed they would be passing on the interest rate cut to home loan customers, with Commonwealth Bank, Westpac, ANZ, NAB, and AMP already committing to do so.

Statistics:

  • The cash rate is now at 3.6 per cent for the first time since April 2023.
  • The RBA has cut interest rates by 0.75 percentage points since the beginning of the year, taking the decline in the cash rate to 75 basis points.
  • The central bank's forecasts put underlying inflation at around the midpoint of the 2-3 per cent range, with forecasts assuming that the cash rate will follow a gradual easing path.
  • GDP growth is expected to expand 1.6 per cent over the year to June, and pick up to 1.7 per cent by the end of the year.
  • AMP has forecast further rate cuts in November, February, and May to take the cash rate to 2.85 per cent.
  • The savings from this month's cut range from $74 on a half a million dollar mortgage to $148 on a $1 million home loan, according to calculations by financial comparison site Canstar.

Sources:

  • "Reserve Bank of Australia" (2023)
  • "Treasurer Jim Chalmers" (2023)
  • "Betashares chief economist David Bassanese" (2023)
  • "AMP chief economist Shane Oliver" (2023)
  • "Canstar" (2023)