RBA delivers second rate cut of 2025, more expected this year

Luci Ellis
05:27pm May 20 2025

At the RBA’s press conference, governor of the Reserve Bank of Australia, Michele Bullock said “price increases have slowed and it’s fairly broadly based, and this is very good news”. (Image source: Adobe, Matteo Colombo)

The Reserve Bank of Australia has lowered interest rates for the second time this year, bringing the official cash rate down by a quarter of a percentage point to 3.85 per cent.

Westpac Economics had anticipated the RBA would deliver the quarter percentage point rate cut as all measures of inflation were firmly within the central bank’s target band of 2-3 per cent. 

At the RBA’s press conference, governor of the Reserve Bank of Australia, Michele Bullock said “price increases have slowed and it’s fairly broadly based, and this is very good news”. 

According to the RBA’s statement on monetary policy, the board “judged that the risks to inflation have become more balanced”. 

Westpac chief economist Luci Ellis said the RBA was now “much more aligned with how Westpac Economics was seeing the economy. 

“So it’s not surprising and it’s good to see that their previous consumption forecasts, which were quite bullish, have now been scaled back. 

“And of course they have responded to all the uncertainties from the trade war overseas and they have cited that as one of the reasons for their inflation outlook to now be consistent with their target.” 

In its statement, the RBA said upside risks to inflation “appear to have diminished as international developments are expected to weigh on the economy”. 

Ellis pointed to the US/China trade war as one of the many global uncertainties factoring into the RBA’s decision. 

“In fact, in their statement on monetary policy they said with trade policies in the United States and other economies evolving rapidly, it is impossible to estimate their economic impact with any accuracy,” Ellis said. 

“Policy unpredictability was a term they used and they’re seeing the world as now being weaker - that feeds through to Australia. 

“Not drastically so, so it’s not a big effect on Australia, and the board sees themselves as well placed to respond if something worse than expected should happen. But there are just a lot of uncertainties over the next little while for the trade war.” 

Westpac Economics anticipates two additional rate cuts this year - half a per cent in total - with one expected in August and another in November. 

Luci Ellis

Luci Ellis is Westpac’s economic spokesperson and is responsible for all of our economic research. She was previously Assistant Governor (Economic) at the Reserve Bank of Australia from December 2016 until October 2023. Prior to that, Luci was Head of Financial Stability Department at the RBA for eight years, spent two years on secondment at the Bank for International Settlements in Basel, Switzerland, and held several other senior positions at the RBA over a three-decade career in central banking. Luci has been a member of the Australian Statistics Advisory Council, the statutory advisory body to the Australian Bureau of Statistics, since November 2015. Luci holds a PhD from the University of New South Wales, a Masters in Economics degree from the Australian National University and a first-class Bachelor of Commerce (Honours) degree from the University of Melbourne.

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