The Reserve Bank of Australia (RBA) has delivered its third interest rate cut this year, lowering the cash rate target to 3.6%. The move continues a gradual easing cycle that began in February, as the central bank navigates the fine line between controlling inflation and supporting economic growth.
While further reductions appear likely, RBA Governor Michele Bullock stressed that future moves remain highly contingent on incoming data. The outlook, she said, is less a forecast than a “best guess”, underlining the central bank’s cautious, meeting-by-meeting approach.
Third Rate Cut Highlights Cautious Optimism
The cash rate target has now fallen from 4.35% to 3.6% over three separate moves in February, May and August. According to Governor Bullock, this trajectory reflects growing confidence that inflation is returning to the RBA’s 2%–3% target band.
“We’ve become increasingly confident that inflation is on track to be in our 2% to 3% target range on a sustainable basis,” she said during the August press conference. However, she also acknowledged that “a lot of uncertainty” continues to cloud the timing and necessity of future adjustments.
The central bank’s modelling currently assumes up to three more rate cuts over the next 16 months: one by the end of 2025, another by June 2026, and a final reduction before year-end 2026. But Bullock described this as a working assumption rather than a fixed path.
Importantly, the July decision to hold rates steady, despite widespread expectations of a cut, signalled the board’s increasing reliance on real-time data. That caution continues, with Bullock reiterating that each policy meeting will weigh the latest economic indicators independently.
Board Adopts Data-First Approach as Outlook Remains Uncertain
Despite a clearer downward trend in inflation, the timing of additional rate cuts remains uncertain. Bullock provided no specific timeline and instead offered what she called a “laundry list” of variables the board monitors, including inflation momentum, labour market strength, household spending, and global economic conditions.
When asked whether the current 3.6% rate is restrictive, Bullock replied that it “maybe, maybe not” represents a drag on the economy. Her comments suggest that the bank is now operating in a narrow policy corridor, with little room for error.
According to the RBA, further rate reductions might be required to maintain low inflation and support employment growth. According to Bullock, the board remains “determined to keep inflation down”, but that goal may involve further cuts. At the same time, the RBA has signalled that future moves will be guided by unfolding conditions, not a fixed plan.
