The Reserve Bank of Australia is widely expected to reduce the cash rate by 0.25 percentage points to 3.6% at its August meeting, offering relief to mortgage holders amid signs of cooling inflation. Such a move would mark the central bank’s first cut in more than a year and could save homeowners with a $600,000 loan around $100 a month.
Economic Backdrop Points to Easing Policy
The two-day policy meeting, which began on Monday, comes after quarterly inflation figures from the Australian Bureau of Statistics indicated a slowdown in price growth. According to AMP deputy chief economist Diana Mousina, the latest data “should convince the board to cut the cash rate” and that such a reduction “should have happened already.”
In July, the board voted by a narrow 6–3 margin to hold rates steady, despite market pricing showing strong expectations for a cut. The decision left many borrowers disappointed. This time, sentiment among analysts is more aligned, with 31 of 34 economists surveyed by comparison site Finder predicting a reduction. Mousina noted that while the domestic outlook supports easing, the RBA is likely to temper market expectations for further cuts.
“We think that the RBA will still sound cautious on giving too much forward guidance and remain of the view that interest rates do not need to be aggressively cut for now, given their concern that upside inflation risks may occur again in Australia,” she said.
Global Influences and Currency Implications
Beyond domestic conditions, the central bank faces a shifting global landscape. Developments at the United States Federal Reserve could indirectly influence Australian monetary policy. According to Mousina, the appointment of Stephen Miran — an ally of President Donald Trump — to the Fed’s board signals a potentially more dovish stance from the US central bank.
Analysts, including JP Morgan chief economist Bruce Kasman, believe the change could bring “pressure for deeper rate cuts” and raise concerns over the Fed’s independence. Historically, when the Federal Reserve has moved to lower interest rates, other central banks have often followed suit.
A more dovish Fed could also have repercussions for the Australian dollar. Lower US interest rates may weaken the greenback, in turn affecting currency markets and investor sentiment. This dynamic, combined with Australia’s own policy decisions, could influence capital flows and export competitiveness.
The RBA’s decision, expected on Tuesday, will therefore be shaped not only by domestic inflation and growth trends but also by external monetary signals. For borrowers, the anticipated cut offers near-term relief; for policymakers, it represents a careful balancing act between supporting economic activity and guarding against renewed inflationary pressure.
