Australia's central bank is cautious about cutting rates further given cost pressures in a hot labour market, but it will respond if inflation slows more quickly than expected, senior officials said on Friday.

The central bank had held its policy rate steady at 4.35% since November 2023, following an extended period of 13 rate hikes to tame inflation at home.

The RBA cut its cash rate by 25 bps to 4.10%, initiating a new easing cycle amid easing inflation. Click here to read what this means for Australian equities.

Australia's central bank expects underlying inflation to fall faster than previously expected as it downgraded the economic outlook, although a still tight labour market is likely to create some lingering price pressures.

The Reserve Bank of Australia (RBA) announced a rate cut of 25 basis points, bringing the cash rate down to 4.10% on Tuesday. This move marks the first rate reduction since November 2020, signaling the bank’s concern over domestic economic uncertainties.

Sky News host Chris Kenny says the Reserve Bank’s widely expected rate cut of 25 basis points cannot be “divorced” from politics.