Australia's central bank cuts rates by 25 bps, still cautious about outlook

Australia's central bank on Tuesday cut its main cash rate by a quarter point to a two-year low of 3.60 per cent, citing a slowdown in inflation and a looser labour market, though it was cautious on the prospect of further easing.

- 

Wrapping up a two-day policy meeting, the Reserve Bank of Australia (RBA) board said data and updated forecasts suggested core inflation would moderate to around the middle of its 2 per cent to 3 per cent target band assuming a gradual easing in policy.

Markets had been fully priced for a cut, having been wrong-footed in July when the central bank held steady, given inflation had slowed as desired in the second quarter while unemployment had moved higher.

"With underlying inflation continuing to decline back towards the midpoint of the 2-3 per cent range and labour market conditions easing slightly, as expected, the Board judged that a further easing of monetary policy was appropriate," the board said in a statement.

"The Board nevertheless remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and potential supply."

The RBA added the cut was a unanimous decision by policymakers, after a rare split one in July.

The Australian dollar was largely calm at $0.6508, while three-year bonds reversed earlier losses to be flat at 96.60. Swaps imply just a 34 per cent probability that the RBA would follow up with a September cut, although a move in November has been fully priced in.