The Reserve Bank of Australia’s Board of Directors decided at its meeting this morning, Tuesday, May 20, to change its monetary policy, as expected, cutting interest rates by 25 basis points to 3.85%, its lowest level since May 2023.
The bank’s interest statement stated that inflation risks have become more balanced, but the outlook is uncertain and highly dependent on unexpected developments in global trade policy.
Core inflation continued to decline as expected, averaging 2.9% over the year, while headline inflation was 2.4%. Unemployment remained at its current level of 4.1%, and wage growth in the first quarter increased slightly. Uncertainty surrounding global trade policies has increased following the announcement of tariffs in early April, with estimates indicating a decline in global and Australian growth. Accordingly, the Bank’s growth forecast for this year is lower than its December forecast. The Bank now sees Australian GDP growing by 1.8% in the first half, compared to 2% in the December forecast, and 2.1% in the second half, compared to 2.4% in the December forecast. The Bank’s inflation forecasts were also lower, with inflation forecasts at 2.1% in the first half, down from 2.4% previously, and 3% by the end of the year, down from 3.7% in the December forecast. The revised inflation forecast is expected to average 2.6% by the end of the year, down from 2.7%. The Bank sees interest rates at 3.40% by the end of this year and 3.20% by the end of next year.
The Board emphasized that inflation risks have become more balanced and upside risks have diminished, and that the Board will pay close attention to data and the evolving assessment of risks to guide its decisions.