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6d ago

Australia's Inflation Returns to Target, Paving Way for May Rate Cut

Core inflation hit a three-year low of 2.9% in Q1, reinforcing expectations of a Reserve Bank of Australia rate cut as fiscal and global pressures weigh on the economy.

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Households tipped to get less interest rate cuts in 2025. NewsWire / Flavio Brancaleone
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Overview

  • Australia's core inflation slowed to 2.9% in the first quarter of 2025, marking its lowest level in three years and returning to the Reserve Bank of Australia's target range of 2–3%.
  • The Reserve Bank of Australia is widely expected to cut interest rates by 25 basis points on May 20, with economists debating whether three or four cuts could follow this year.
  • Bendigo Bank forecasts four rate cuts in 2025, potentially lowering the cash rate to 3.1% by year-end, while AMP projects a slower pace with three cuts at most.
  • Election-driven fiscal spending has raised concerns about inflationary pressures and risks to Australia's AAA credit rating, as warned by S&P.
  • Global economic uncertainties, including U.S. tariffs and slower growth forecasts for major economies, are adding complexity to the RBA's monetary policy decisions.