Investing.com-- The Reserve Bank of Australia cut interest rates as expected on Tuesday following a recent decline in inflation, with the central bank warning that heightened uncertainty over the global economy was likely to weigh on Australian growth.
The RBA cut its benchmark rate by 25 basis points to 3.85%, its second interest rate cut this year after a 25 bps reduction in February. Tuesday’s cut also brought rates to a two-year low.
The central bank said risks of higher inflation had become more balanced, and that softer growth in the rest of the world was likely to factor into weakness at home.
The RBA did not commit to any further easing, stating that it “will be attentive to the data and the evolving assessment of risks to guide its decisions.” The central bank reiterated that maintaining low and stable inflation remained its priority.
Tuesday’s cut comes as Australian inflation declined steadily this year, with core inflation falling within the RBA’s 2% to 3% target range.
RBA warns on trade, economic headwinds
In its updated economic forecasts, the RBA said it now expects Australian unemployment to increase slightly more than its prior forecast, while inflation is expected to trend slightly lower than initially expected. Both trends, the RBA attributed to a weaker global economic outlook, which is likely to spill over into Australia.
Headline inflation is expected to end the year at 3.0%, while underlying inflation is expected to trend around the midpoint of the RBA’s 2% to 3% target range by end-2025.
Gross domestic product growth, however, is still expected to pick up in the year ahead on a recovery in consumer spending and public demand. But the pick-up is expected to be slower than initially forecast.
The RBA now sees 2025 GDP at 2.1%, down from its prior forecast of 2.4%.
The RBA noted that market expectations were for a cumulative 85 basis points in interest rate cuts over the coming year.
The central bank also noted that any escalation in a global trade conflict presented a key downside risk for the economy.