RBA interest rates: Reserve Bank finally agrees time right for third cut in 2025

Michele Bullock has signalled further relief could be looming for Australian borrowers after the Reserve Bank cut the official interest rate for the third time this year.

The unanimous decision took the cash rate to 3.6 per cent, which is the lowest level since May 2023.

That will put about $90 back in the pocket of a borrower with a $600,000 mortgage, according to Canstar. Also among the likely winners from lower interest rates will be business investment, retail spending and exports.

There was no discussion of a larger 50 point cut.

But Governor Michele Bullock signalled more relief would likely be looming in the months ahead to keep inflation and unemployment in the sweet spot.

“The (economic forecasts) are dependent on more interest rate cuts,” she said.

“If we didn’t cut . . . we’d probably be missing both our targets.”

It comes five weeks after the RBA held steady in July to wait for a clearer picture on inflation.

Those numbers arrived later in the month and showed core inflation — the Reserve Bank’s preferred measure of prices because it strips out volatility — fell to the slowest pace in more than three years at 2.7 per cent.

The RBA on Tuesday said that result was “broadly as expected” and cost of living should “continue to moderate”.

But the central bank warned it remained “cautious about the outlook” as there was heightened uncertainty about the economy’s capacity to make enough goods and services to meet the spending of Australians.

The jobs market remains strong with unemployment close to historic lows at 4.3 per cent, although it lifted 0.2 percentage points last month.

The RBA declared on Tuesday that the market still looks “a little tight”, meaning there were not significant concerns about widespread job losses.

Financial markets had been expecting the cash rate to drop to 3.1 per cent by February and stick there for the remainder of 2026.

KPMG’s Brendan Rynne tipped more relief on the way as “another couple of cuts is required to energise our economy again and turn things around”.

Judo Bank’s Warren Hogan also thought the RBA sounded a bit more “dovish” — less worried about inflation — and said Ms Bullock’s comments pointed to two or three more cuts in the next 12 months.

But VanEck analyst Russel Chesler said there were good reasons not to rush.

“Given there is plenty of strength in the economy already, we’d need to see how the existing rate cuts play out before factoring in any additional easing,” Mr Chesler said.

“Too many rate cuts run the risk of increasing inflation and possibly over-heating the property market, making it harder for first home buyers.”