The Reserve Bank of Australia (RBA) lowered its benchmark interest rate by a quarter of a percentage point for the second time this year, bringing the cash rate down to 3.85%. This move follows a steady decline in inflation, which has now fallen within the bank’s target range.The RBA reduced the rate from 4.1%, continuing the easing that began with the first cut from 4.35% in February, Australia’s first rate reduction since October 2020. The bank, however, also warned of “considerable uncertainty” referring to the global response to US President Donald Trump’s tariffs.“These developments are expected to have an adverse effect on global economic activity,” the bank’s board stated, quoted by AFP. “Particularly if households and firms delay expenditure pending greater clarity on the outlook.”This much-anticipated decision came at a time when optimism had slightly faded due to recent trade developments between the US and China. However, hope was renewed last week as both countries agreed to roll back tariff hikes for 90 days, reviving stalled negotiations between the world’s two largest economies.The bank’s goal in adjusting interest rates is to keep inflation between 2% and 3%. During the March quarter, annual inflation stood at 2.4%, while the trimmed mean, a preferred measure of underlying inflation, was 2.9%. The previous three months also saw inflation steady at 2.4%. However, the core figure that excludes the highest and lowest prices, gave a clear picture leaving the inflation at 3.2% for the last quarter of 2024.The figures suggest that inflation is stabilising after peaking at 7.8% in late 2022. However, unemployment nudged up slightly to 4.1% in the first quarter of this year, from 4.0% in the previous quarter. Economists warn that ongoing labour shortages could pose risks and further drive up inflation numbers.
