The Reserve Bank of Australia (RBA) slashed interest rates for the second time this year, during Tuesday's meeting on monetary policy.
Australia’s central bank lowered the official cash rate (OCR) by 25 basis points to 3.85%, down from 4.10%, in a move that aligned with broad market expectations — though fell short of the more aggressive 50-basis-point cut some bullish market players had anticipated. The bank pointed to easing inflation, rising wages, and ongoing global volatility as the key drivers behind its decision.
RBA Governor Michele Bullock described the move as “the right decision at this point in time” during a press conference, but left the door open for future rate cuts throughout the year.
"Where this leads us in the future is a little bit more uncertain," Bullock said.
In a statement released by the RBA, the bank said its decision was largely based on "considerable uncertainty about the final scope of the tariffs and policy responses in other countries. Geopolitical uncertainties also remain pronounced. These developments are expected to have an adverse effect on global economic activity, particularly if households and firms delay expenditure pending greater clarity on the outlook. This has also contributed to a weaker outlook for growth, employment and inflation in Australia. That said, world trade policy is changing rapidly, thereby making the central forecasts subject to considerable uncertainty."
Bullock went on to describe the ongoing tariff tensions— which began in April with US President Donald Trump's Liberation Day tariffs– as "a complete rollercoaster."
"We have made the judgement that global trade issues overall will be disinflationary for Australia," she said. "However, there is a risk of inflation on the other side.
"The key point about the financial market we're in, is that it's not just uncertain, it's unpredictable," Bullock continued, adding that in a worst-case scenario Australia could be susceptible to a recession.
Closer to home, the governor said the bank took a "cautious" approach when reviewing rates.
"Now that we've got inflation down, we must keep it there, while trying to maintain a healthy jobs market. So there's now a new set of challenges facing the economy," Bullock said. "But with inflation declining and the unemployment rate relatively low, we're well positioned to deal with them.
“The board was of the view that 25 basis points was the right thing for now. But that doesn’t rule out that we might need to take action later,” Bullock said, adding that the RBA will continue to base future decisions on economic indicators. “We do have to remain data-driven,” she said.
The interest rate reductions came as welcome relief to mortgage holders and investors alike, many of whom have been grappling with a higher-than-usual cost of living Down Under.
"Interest rates have impacted people who have loans, really, really severely. And they've been under the pump," Bullock said.
Mortgage and Finance Association of Australia's (MFAA) Chief Executive Officer Anja Pannek agreed that the rate cuts are welcome relief, but warned they might take some time to flow through the economy and property markets.
But Bullock said that the nation's housing issues, both affordability and supply, are not something the RBA has control over.
"There's nothing the Reserve Bank can do about these affordability issues of housing," the governor said. "This is an issue of housing demand and housing supply. Increasingly this is an issue that is finding its way into the government, both the Federal and state governments, and that's where the focus has to be.
"This didn't just pop up overnight," Bullock continued. "This has been brewing for many years. There's nothing I or the bank can do about this. We've got to focus on our employment and inflation mandate, which is actually a really good thing we can do for young people or renters.
"What governments can do is look at the supply and demand imbalance in housing," she said.
But house prices don't appear to be declining anytime soon.
In 2025, and the median home price in five of Australia's capital cities — Sydney, Melbourne, Brisbane, Canberra and Adelaide — have passed the million-dollar mark, according to Domain.
Nationally, dwelling values rose 3.4% annually in the 12 months ending in March, according to CoreLogic, with double-digit increases in Adelaide and Perth. And even since February's rate cuts, prices have risen in Melbourne and Queensland, according to recent PropTrack data.
Meanwhile, a number of lenders quickly followed suit with their own variable rate cuts. The list includes Commonwealth Bank (CBA), Westpac, National Australia Bank (NAB), Suncorp Bank, ING,AMP, Athena Home Loans, Bluestone, Pepper Money and MoneyMe.
"The upcoming rate cut is a welcome move as it provides significant relief and increases cash flow, enabling our broker customers to plan for their future with greater confidence," said Chris Thomas, executive, commercial broker and equipment finance sales at NAB, regarding the major's variable rate reduction, which goes into effect May 30. "This rate cut not only benefits their businesses but also positively impacts their household budgets if they have home loans with NAB."
Westpac Acting Chief Executive, Consumer Carolyn McCann added: “We know many people continue to face cost of living pressure and today’s news will provide some welcome relief for mortgage customers."
