The Reserve Bank of Australia (RBA) could cut rates at its next meeting despite its cautious plan to lower inflation as GDP figures reveal stagnation in Australia’s economy, some analysts say.
Australia’s economy has barely moved in the last quarter — GDP slowed to 0.2 per cent in the first three months of 2025, down from a 0.6 per cent rise in the December quarter, according to the Australian Bureau of Statistics.
Treasurer Jim Chalmers said “any growth is positive” in response to questions about why the figures were worse than expected.
Natural disasters delivered a big hit to the Australian economy — causing around $2.2 billion in damages, according to Treasury figures — while Chalmers added “substantial headwinds at home and abroad” are also inhibiting growth.

What will the RBA do at its next meeting?

At its May meeting, RBA dropped the official cash rate by 0.25 per cent, taking it down to 3.85 per cent.

RBA governor Michele Bullock said the board considered a 0.5 per cent cut, but ultimately did not want to risk inflation rising again after it had steadied.

A graph showing interest rates in Australia over the years.

The RBA reduced the cash rate target by 0.25 per cent in May, taking the key interest rate down to 3.85 per cent following what it described as a healthy reduction in inflation. Source: SBS News

Financial markets are now pricing in a greater than 90 per cent chance the RBA will cut interest rates at its next meeting in July, with about a 70 per cent chance of a follow-up cut in August.

Markets predict the cash rate will be at or below 3.1 per cent by the end of the year, down 0.75 per cent from its current level of 3.85 per cent.
Benjamin Picton, a senior macro strategist at Rabobank, who expects a rate cut in July, said: “The households are rebuilding their balance sheets, but that’s not being converted into spending.”

“I think if we do see a few more rate cuts start to flow through … that should give consumer confidence a bit of a shot in the arm, we think, and maybe we’ll start to see a bit of a response in household consumption,” he said.

Tony Sycamore, market analyst at financial markets trading firm IG, said per capita GDP growth fell by 0.2 per cent in the last quarter, adding weight to the probability the RBA will cut the cash rate at its next meeting.
“[The] GDP release reaffirms that the Australian economy continues to muddle along at a rate significantly below the 2.5-3 per cent growth rate we grew accustomed to before the COVID shock,” he said.
“It also suggests the economy will fall short of the RBA’s recently revised lower forecasts of 1.8 per cent for June 2025 and 2.1 per cent for December 2025.

“While there may be a temptation to overlook the adverse impacts of the weather, the lack of acceleration in the annual growth rate reinforces the case for the RBA to continue easing its restrictive monetary policy settings.”

“We expect the RBA to cut rates by 0.25 per cent at its meeting in July, bringing it to 3.6 per cent, and to deliver another 0.25 per cent cut in August,” Sycamore said.

When will the RBA cut rates?

Steven Wu, a senior economist at the Commonwealth Bank, told SBS News’ On the Money podcast the RBA could continue the cautious path it’s been treading, despite soft GDP figures.
“We haven’t shifted our thinking on the profile for further rate cuts from the RBA. It’s still very clear that the RBA will need to and will deliver further rate cuts. I think today’s data at the margin does shift the balance of probabilities towards earlier rate cuts rather than later rate cuts,” he said.

But he said the bank still maintains August is the most likely meeting for the next 0.25 per cent cut, followed by another one in September.

“There is a case to be made that will be, should see rate cuts being brought forward to maybe say July? But we think the RBA still remains a little bit cautious in how it wants to proceed with further rate cuts from here,” Wu said.
“They will want to see more data and they will of course get the all-important quarterly CPI [consumer price index] numbers ahead of the August meeting.”
He said if labour market data appears soft, it could sway an earlier rate cut.
Devika Shivadekar, economist at financial services firm RSM Australia, said a hit to exports and flat government spending could prompt the RBA to remain cautious.
“The GDP figures reinforce expectations that the Reserve Bank of Australia will remain cautious, with its latest commentary pointing to a slower-than-expected recovery in domestic activity over 2025.
“Ongoing global uncertainty, muted household spending, and the aftershocks of recent climate-related disruptions all contribute to a more dovish near-term stance.
“We still expect to see the next reduction by 0.25 per cent in August. However, weak incoming data could make the July meeting one to watch.”