In its April 2025 meeting, the Reserve Bank of Australia (RBA) decided to maintain the official cash rate at 4.1%, following a 25 basis point cut in February—the first reduction since November 2020. This decision reflects the RBA’s cautious approach amid evolving economic conditions and global uncertainties.
Inflation Trends
Inflation has moderated significantly since its 2022 peak, aligning closer to the RBA’s target range of 2–3%. The December quarter recorded underlying inflation at 3.2%, indicating easing price pressures. Despite this progress, the RBA Board seeks further assurance that inflation will sustainably return to the midpoint of the target band before considering additional policy adjustments.
Global Economic Risks
The RBA has expressed concern over pronounced geopolitical uncertainties, particularly recent U.S. tariff announcements, which are impacting global confidence and could affect Australia’s economic activity and inflation. Governor Michele Bullock highlighted that while the immediate effects are being monitored, the long-term implications of escalating trade tensions could pose significant challenges, including the potential for ‘stagflation’—a scenario characterized by slowing growth and rising inflation.
Domestic Economic Indicators
Domestically, economic indicators present a mixed picture. Retail sales in February rose modestly by 0.2%, marking the second consecutive month of slight gains. This growth was primarily driven by food and dining sectors, while demand for household goods declined. The cautious increase in consumer spending reflects improved sentiment following the February rate cut and a gradual easing of inflation.
The RBA’s decision to hold the cash rate steady underscores its commitment to balancing domestic economic growth with external uncertainties. The Board remains vigilant, ready to adjust monetary policy as necessary to support Australia’s economic stability in the face of evolving global and domestic developments.