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The Reserve Bank of Australia (RBA) lowered its benchmark interest rate by 25 basis points to 4.10%, marking its first rate cut since late 2020 as inflation shows signs of moderating more quickly than anticipated.

The central bank, however, struck a cautious tone about future policy easing. Although the official  statement emphasized that monetary policy will remain restrictive even after this reduction, the bank indicated that while it’s prepared to ease further if conditions warrant and that any additional policy loosening will likely be gradual and data-dependent.

Key Takeaways:

  • RBA lowered cash rate by 25 basis points from 4.35% to 4.10%
  • First rate reduction since November 2020
  • Underlying inflation moderating faster than expected at 3.2%
  • Labor market remains unexpectedly tight
  • Bank maintains cautious stance on future easing

Link to official RBA Monetary Policy Statement for February 2025

Furthermore, the RBA policy statement highlighted that recent employment data suggested that the job market may be tighter than previously assessed and that upside inflation risks from rising wages remain.

The accompanying quarterly Statement on Monetary Policy also revealed that, while the domestic economy is expected to pick up, global uncertainties continue to cloud policymakers’ outlook.

In particular, it noted that “Increased tariffs between the United States and its major trading partners, along with proposed US fiscal and deregulation policies, pose material risks to the global economic outlook over 2025 and 2026.”

Link to RBA Quarterly Statement on Monetary Policy

During the press conference, RBA Governor Michelle Bullock reiterated that they cannot declare victory on inflation just yet, explaining that their decision to ease was not a signal for a series of forthcoming reductions. She explained that this cut was a “difficult decision” and that further cuts would depend on incoming data.

Market Reaction:

Australian Dollar vs. Major Currencies: 5-min

RBA Slashed Rates by 0.25% as Expected But Remained Cautious About Future Easing

Overlay of AUD vs. Major Currencies Chart by TradingView

The Australian dollar, which had been cruising slowly higher leading up to the RBA announcement, had a mixed reaction to the decision. AUD/NZD and AUD/JPY appeared to hold their ground somewhat while AUD/USD chalked up the most losses, followed by AUD/CAD.

The press conference spurred a more broad-based recovery for the Aussie, as Governor Bullock downplayed the possibility of immediate further easing, leading AUD/NZD and AUD/JPY to create fresh intraday highs while majority of AUD pairs extended their gains towards the end of the Asian session.