RBA Cuts Cash Rate To 3.60%, Warns On Productivity Slowdown
Reserve Bank of Australia delivers third rate cut in 2025 as inflation cools, but structural economic risks remain.
August 12 EST: The Reserve Bank of Australia (RBA) has cut its cash rate by a quarter point to 3.60%, the lowest in more than two years, marking its third reduction in 2025. It’s a move that offers borrowers some breathing space but comes with a heavy dose of caution from Martin Place.
Inflation Is Behaving For Now
The RBA has been chasing this moment since the inflation scare of 2022–2023. Headline inflation is sitting at 2.1%, comfortably inside the target band, and the core rate has eased to 2.7%, its weakest reading in three years.
That’s the sort of data that usually gives central bankers a green light. But the tone out of Tuesday’s meeting was more amber than green. The board pointed to “uncertainty” around both consumer demand and supply capacity, a polite way of saying they’re not yet convinced the disinflation story has run its course.
Job Market Is Losing Some Heat
The unemployment rate has ticked up to 4.3%, from 4.1% earlier in the year. Job ads are thinning out, and businesses that spent 2023 desperate to fill roles are now taking their time. That shift is exactly what the RBA wanted to see after two years of overheated hiring, but it also underscores why the bank isn’t prepared to keep rates high just for the sake of optics.
Productivity: The Quiet Red Flag
In the background, a quieter problem is taking shape. The RBA now expects productivity growth to average just 0.7% a year, down from a previous forecast of 1%. On paper, that’s a modest change. In practice, it means slower wage growth potential, a smaller buffer against inflation, and a more fragile economy over the next decade.
It’s the kind of structural weakness that can’t be fixed with rate tweaks alone it needs business investment, skills reform, and a better appetite for risk in both the public and private sectors.
External Risks Still On The Board
The global backdrop isn’t making life easier. Demand for Australia’s export staples from iron ore to LNG has softened, and trade tensions between big economies are still unresolved. That’s kept the RBA wary of easing too aggressively and seeing the currency tumble.
The Household Equation
For homeowners, the maths is straightforward. A $700,000 mortgage could cost around $1,100 less a year if lenders pass on the cut in full. That’s welcome news in suburbs where household budgets have been stretched to breaking point.
But the winners on this move have their mirror image in retirees and savers, who will see deposit returns fall further. There’s also the risk that cheaper credit stirs another leg-up in house prices, undoing the slight gains in affordability over the past year.
Markets Already Looking Ahead
Traders are pricing in another cut by November and even a possible move in early 2026. The RBA hasn’t promised anything, but the market is betting the slowdown will force its hand.
Still, Governor Michele Bullock has been careful not to box herself in. The bank wants to support growth without inviting a rerun of the inflation spiral. That means the easing cycle is likely to be deliberate, not desperate.
Bottom Line
Australia’s rate path has swung from a fight against inflation to a bid to cushion a slowing economy. Tuesday’s cut shows the RBA is willing to shift gears but only as far as the road ahead looks clear. The trouble is, between soft productivity, a cooling job market, and unsettled global conditions, the visibility isn’t great.
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A Wall Street veteran turned investigative journalist, Marcus brings over two decades of financial insight into boardrooms, IPOs, corporate chess games, and economic undercurrents. Known for asking uncomfortable questions in comfortable suits.
