The Reserve Bank of Australia is prepared to “respond decisively” to any deterioration in the global economy, paving the way for rapid-fire cash rate cuts if Donald Trump’s tariffs spark further market upheaval.
The 20 May RBA meeting minutes, released on Tuesday, show the rate-setting board discussed implementing a bumper 50 basis point cut last month. But they decided such a move was not yet warranted because there were no immediate signs the economy had been significantly affected by the US trade policy.
The RBA decided on a quarter point cut instead, amid falling inflation and weak household consumption.
“A 25 basis point reduction would ensure that monetary policy settings remained predictable at a time of heightened uncertainty, given market expectations,” the minutes said.
“And it would leave the board well-placed to respond as needed as the economy evolved.”
The RBA noted it would “respond decisively to international developments if they were to have material implications for activity and inflation” in Australia.
In that scenario, the RBA would cut rates faster than currently forecast to support the Australian economy.
Property prices
The May minutes will inflate the hopes of mortgage holders of another near-term reprieve in lending rates.
This marks a stark change in tone from RBA meetings earlier this year when the central bank warned against expectations of further cuts.
While more rate cuts will be welcomed by indebted mortgage holders, a reduction in borrowing rates threatens to fuel another surge in house prices, making property even more unaffordable for prospective buyers.
The RBA governor, Michele Bullock, acknowledged last month that falling borrowing rates could drive property prices higher, but said the onus was on federal and state governments to resolve housing shortages.
Economists viewed the May rate cut as a shift back towards a neutral rate setting that neither ignites nor constrains the economy after a prolonged period of elevated borrowing costs.
After the May meeting, Australia recorded a slightly hotter-than-expected underlying inflation reading. While this could temper calls for a rate cut at the next meeting in early July, the market is pricing in a near 80% chance of a 25 basis point cut to 3.6%.
The falling cost of home loans has already driven house prices up across every capital city, according to Matthew Hassan, a senior economist at Westpac.
“The RBA’s latest rate cut [is] adding clear impetus,” Hassan said.
“Prices are now up 1.7% since the RBA began easing interest rates in February.”
Nearly 3,000 homes went to auction in the last week of May, the second highest figure for 2025, according to property analytics firm Cotality.
Surging momentum pushed the auction clearance rate to 65.1% the week before that, the highest since July 2024.
Further rate cuts will see buyers force up national home prices at a faster rate than wages over 2025, analysts expect, despite persistent cost-of-living pressures on borrowers.
Minimum wages were raised 3.5% on Tuesday and the Reserve Bank expects national wage growth will sit at just 3.3% by the end of 2025.
