RBA Cuts Interest Rates to 3.85% – What It Means for Investors

The Reserve Bank of Australia (RBA) has lowered its key interest rate by 0.25% to 3.85%, marking a two-year low. This decision reflects ongoing caution amid heightened global uncertainty, including geopolitical tensions, trade disputes, and concerns about the broader economic outlook.

The RBA’s move is the second cut this year and brings the total easing in the current cycle to 0.5%. While this step aims to support domestic growth, it also signals a recognition of the delicate balance between sustaining economic momentum and managing inflation, which has recently shown signs of easing toward the RBA’s 2-3% target range.

Looking ahead, the central bank has indicated that further rate cuts are likely, with market expectations pricing in up to two additional reductions by the end of the year, potentially bringing the cash rate down to around 3.25% by December 2025. This forecast assumes a gradual loosening of the labor market and continued moderation in inflationary pressures. Given the dovish tone of the announcement and expectations of further rate cuts, the currency is trading -0.29% weaker at 0.6438.

Despite the easing, the RBA’s outlook remains cautious. Inflation and wage growth surprised on the upside earlier this year, and the tight labor market has so far supported consumer spending. However, global factors, including ongoing trade tensions and tariff threats, are expected to weigh on growth and business confidence, influencing the bank’s measured approach.

Australia’s economy is closely linked to global trade, with China being the country’s largest trading partner. The unfolding geopolitical and economic dynamics, therefore, have a direct impact on the outlook. The RBA’s forecast takes into account the potential effects of tariffs and geopolitical risks on global growth, which could dampen demand for Australian exports and slow domestic activity.

For many investors, lower interest rates mean continued pressure on traditional income sources such as cash accounts and term deposits. With the cash rate now at 3.85% and expected to trend lower, yields on these safer assets are unlikely to provide sufficient income in the current environment.

This makes it more important than ever to consider diversified income strategies that go beyond cash and fixed deposits, balancing the need for yield, security, and access to capital.

At Rivkin, we recognise the challenges that a declining interest rate environment presents. Our investment approach offers several options designed to help clients achieve higher levels of income while actively managing risk, including a blend of listed and unlisted investments, providing a balance between liquidity and yield.

If you’re looking to navigate this evolving landscape and boost your income potential, we encourage you to contact us.