The Reserve Bank of Australia (RBA) has reduced the cash rate by 0.25% to 3.85%, providing much-needed relief to mortgage holders who have been struggling with high living costs and elevated interest repayments. This rate cut signals the RBA’s confidence that inflation is being controlled, and that the need for a borrowing rate over 4% is no longer necessary. The decision comes at a time when global uncertainties, such as Donald Trump’s tariffs, continue to cast a shadow over the world economy.

RBA Governor Michele Bullock emphasized that inflation is decreasing and that Australia’s job market remains strong. She acknowledged that while the economic outlook was improving, the global economy remains "unpredictable" and has been like a "complete rollercoaster."

The move, the second interest rate cut this year, aims to protect households from the potential fallout of ongoing global trade tensions. Bullock added that although the recovery is on track, the RBA remains cautious about the possibility of economic deterioration, especially given the risks posed by global events.

Australia's economic growth has slowed recently, putting downward pressure on interest rates. Employment growth is expected to ease more than anticipated, and wages growth is likely to stabilize at a lower rate. Despite these challenges, Bullock doesn’t expect Australia to fall into recession, although the RBA remains vigilant.

Financial markets now expect further rate cuts, with many predicting a 0.25% reduction at the RBA's next meeting in July. The decision to reduce rates by a quarter point was widely anticipated, but some analysts had hoped for a larger cut or feared that no rate reduction would occur.

With global trade tensions and domestic economic pressures in play, the RBA's cautious approach reflects a balance between supporting households and managing the risks that lie ahead.

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