WEEKLY E-MAIL

19 August 2025

RECENT RBA INTEREST RATE CUT UPDATE

By Amelia Paullo

The Reserve Bank of Australia (RBA) has recently lowered the official cash rate by 0.25 percentage points to 3.60%, marking its third rate cut in 2025. This decision reflects continued moderation in inflation and a softening labour market, with the RBA signalling that further easing may be appropriate to support economic growth.

Domestic Economic Update

Inflation: Trimmed mean inflation has eased to 2.7%, within the RBA’s target range of 2–3%.

Labour Market: Unemployment has edged up to 4.3%, indicating a cooling but resilient job market.

Growth Outlook: GDP growth is forecast to reach 1.7% by year-end, revised down from 2.1% earlier in the year.

Housing Market: Lower rates have improved affordability and boosted refinancing activity. The average owner-occupier with a $750,000 mortgage could see monthly repayments fall by $111, assuming lenders pass on the full rate cut.

Global Interest Rate Trends

Australia’s monetary policy shift aligns with a broader global trend toward easing, though the pace and rationale vary across economies.

United States: The U.S. Federal Reserve has held its benchmark rate steady at 4.25%–4.50% through August, with a majority of economists forecasting a rate cut in September, followed by another before year-end. Inflation remains sticky, and recent data revisions suggest a weakening job market. Political pressure and economic uncertainty are influencing the Fed’s cautious stance.

United Kingdom: The Bank of England (BoE) recently cut its base rate to 4%, citing subdued housing activity and rising unemployment. The BoE is expected to continue its easing cycle into 2026, with inflation projected to trend lower over the medium term.

Japan: In contrast to other developed economies, Japan has raised interest rates in response to persistent inflation. This divergence highlights the unique structural dynamics of the Japanese economy.

Eurozone and Emerging Markets: The European Central Bank is expected to maintain moderate rates, balancing inflation control with growth. Emerging markets are adopting mixed strategies—some raising rates to attract foreign investment, while others follow easing paths to stimulate domestic demand.

Impact on the Property Market

The RBA’s August rate cut has injected fresh momentum into the Australian property market, amplifying trends already underway since earlier cuts in February and May. Lower borrowing costs have improved affordability, particularly for first-home buyers and single-income households. Increased borrowing capacity has led to heightened demand in a supply-constrained environment, pushing prices upward across many regions.

However, experts caution that while the rate cut supports price growth, it may also widen the gap between buyers and sellers, and between homeowners and renters. Rental affordability remains a concern, as landlords are unlikely to pass on mortgage savings to tenants. Investors are seeing improved cash flow and refinancing opportunities, but the broader market remains sensitive to future rate movements and economic conditions.

Amelia Paullo
Senior Financial Planner
SMSF Specialist Advisor™
Authorised Representative No. 1243426

If you have any questions or comments, please email me at amelia@gfmwealth.com.au

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