Australia lowers the political interest rate to 2-year deepest

The Australian Central Bank lowered its political interest rate by 25 basis points to the lowest in two years, since the inflation problems in the country continue to withdraw, which the bank offers space for alleviating monetary policy.

The Reserve Bank of Australia lowered the benchmark rate to 3.85%, the lowest since May 2023, according to the expectations of economists surveyed by Reuters.

While the RBA said that the upgrade risks for inflation had “significantly” reduced, uncertainty about global trade policy will probably continue to weigh up the economy.

“The headlining inflation is expected to increase in the second half of 2025, since temporary state subsidies for households will be handled before they later return to the center of the target area in the forecast period,” said the central bank in its monetary explanation.

Inflation of Australia was on a downward trend, with the recent number of headlines in the first quarter of 2025 reaching a low of 2.4%. The target area of ​​the RBA for inflation is between 2% and 3%.

However, the central bank warned that household consumption can recover more slowly than before, which leads to a subdued growth of the overall demand and a sharper deterioration of the labor market.

“There is a good chance that (the RBA) continues to reduce interest rates when we are currently expecting this cycle,” said ABHIJIT Surya, Senior APAC economist in the capital economy, in a note.

However, Surya believes that the bank overestimates the extent in which its economy is violated by the widespread trade voltages.

The Australian economy has a certain gymnastics sound, with the latest GDP reading showing an expansion of 1.3% in the fourth quarter compared to the previous year and has marked its first expansion since September 2023.

However, analysts have emphasized the downward risks for the Australian economy before the RBA meeting due to the global trade voltages and the uncertainty in relation to the domestic economy.

In a note dated May 16, the HSBC analysts found that “the global economy and the financial markets since the last meeting of the RBA on April 1, including the imposition -and the subsequent suspension -the” liberation day “tariffs of US President Donald Trump, had turbulent times.

The analysts predicted a “modest negative growth effect” on the country and said that the market shocks for Australia were probably slightly completed.

This is due to weaker expected global growth and trade transmission of manufacturing goods from China in non-US markets, including Australia.

Carl Ang, Analyst with a fixed income at MFS Investment Management, also stated in a proof of May 15 that the downward risk and the uncertainty in terms of the economic prospects of Australia had increased significantly due to the “liberation day” and global trading policy.

This will probably lead to a “tangible peak of the RBA”, he said, and predicted that the central bank will reach a terminal set of 3.1% in early 2026.