The Reserve Bank of Australia cut interest rates by 25 basis points to a two-year low as scheduled, with policy outlook remaining cautious.

On Tuesday, the Reserve Bank of Australia announced a 25 basis point cut in the benchmark interest rate to 3.60%, reaching a two-year low. The decision was based on the current situation of slowing inflation and slack in the labor market, but the central bank remains cautious about further easing policies. After a two-day policy meeting, the board of the Reserve Bank of Australia stated that the latest data and forecasts indicate that if policies gradually loosen, the core inflation rate is expected to fall to the midpoint of the target range of 2%-3%. The rate cut was in line with market expectations - the decision in July to hold rates steady had caught the market off guard, as inflation in the second quarter had slowed as expected, while the unemployment rate had risen. "Given that underlying inflation continues to fall towards the mid-point of the 2-3% target range and the labor market is expected to slightly slacken, the board believes that further monetary policy easing is appropriate," the Reserve Bank of Australia said in a statement. "However, considering the high uncertainty in total demand and potential supply, the board remains cautious about the economic outlook." It is worth noting that this rate cut was unanimously approved by decision-makers, while the July meeting had seen a rare split. After the announcement, the Australian dollar remained stable against the US dollar, and three-year government bond yields recovered from their earlier declines. Interest rate swap markets show a probability of only 34% for another rate cut in September, but a rate cut in November has been fully priced in. Last month, the decision by the Reserve Bank of Australia to hold rates steady at 3.85% had shocked the market, as most policymakers wanted to wait for more data to confirm the inflation falling towards the midpoint of the target range. The latest data shows that overall inflation in the June quarter dropped to 2.1%, while the trimmed mean measure of core inflation hit a three-year low of 2.7%; at the same time, the labor market loosened from full employment levels, with the unemployment rate jumping from 4.1% to 4.3% within a month. There are signs that the effects of rate cuts in February and May are gradually showing: as inflation falls and previous tax cut policies drive consumer spending higher. Harry Murphy Cruise, Director of Economic Research and Global Trade at the Australian branch of the Oxford Economics Research Institute, said, "The sharp rise in unemployment strengthens the argument for a rate cut, while strong household spending indicates that some families still have the ability to engage in non-essential consumption. Ultimately, price and employment data are the most convincing - when inflation improves and employment worsens, further easing is inevitable." The institution predicts another rate cut this year, possibly in November. The Reserve Bank of Australia also lowered its economic growth forecast on the same day, mainly due to persistently weak productivity, but still predicts a slowdown in core inflation and the maintenance of stability in the labor market. Given the central bank's stance of adjusting policies only after quarterly inflation data is released, investors are generally betting on another rate cut in November, with a possible follow-up in February next year. The global economic outlook seems to have slightly improved. US President Trump announced on Monday that the tariff truce with China would be extended for another 90 days, temporarily avoiding imposing triple-digit tariffs on Chinese goods.