August 12, 2025 — In a widely anticipated move, the Reserve Bank of Australia has lowered its official cash rate by 0.25 percentage points, bringing it down to 3.60% — the lowest level since April/May 2023
This marks the third reduction in the cash rate this year, following previous cuts in February (to 4.10%) and May (to 3.85%)
RBA’s Rationale
Governor Michele Bullock highlighted robust evidence of easing inflation, including a fall to around 2.7% in the RBA’s preferred measures like the quarter‑on‑quarter trimmed mean. At the same time, modest slackening in the labour market added to the case for easing policy.
However, the RBA sounded a cautionary note—long‑term productivity growth has been revised down from 1% to 0.7%, lowering the sustainable trend growth rate to around 2% and impacting future wage and economic growth alerts.
Impact on Borrowers
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Mortgage Relief: Households are expected to benefit significantly. For example, a borrower with a $600,000 mortgage stands to save around $90 per month, and in total $272 per month since February’s first cut.
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Banks Passing on Cuts: Major lenders—including Westpac, Commonwealth Bank, ANZ, and Macquarie—have pledged to pass the cut onto variable-rate borrowers.
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Fixed Rates Drop: Ahead of the decision, many banks had already started dropping fixed mortgage rates below 5%, with some offers dipping to 4.89% over two years
Market Reactions & Future Outlook
Economists widely expected the August cut, with around 90–91% of forecasts predicting it after the RBA held rates steady in July. Some experts are now forecasting further cuts, potentially lowering the cash rate to between 3.0% and 3.25% by early to mid‑2026 .
Governor Bullock suggested the RBA is data-dependent, with the board approaching future decisions “meeting by meeting”—all members fully backed the current 25‑point cut, and there was no discussion of a larger move.
Economic Trade-offs
While the rate cut offers much-needed relief for borrowers and may support spending and investment, the downgrade in productivity growth underscores long-term concerns about economic resilience and slower wage gains. Treasurer Jim Chalmers welcomed the decision but noted that productivity challenges and slower trend growth remain critical issues
This third cut of the year signals a continued shift from the restrictive stance adopted to tame post-pandemic inflation, though the RBA is proceeding with careful consideration of future economic data and risks.
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