It says upside risks to inflation have diminished, while international developments are expected to weigh on the domestic economy.

Australia’s central bank cut its main cash rate by 25 basis points to a two-year low of 3.85 per cent, citing a darker global outlook and cooling inflation at home, though it also remained cautious on further easing.

Wrapping up a two-day policy meeting, the Reserve Bank of Australia (RBA) said upside risks to inflation had diminished, while international developments were expected to weigh on the domestic economy.

Markets had been fully priced for an easing given a slowdown in inflation at home and a darker outlook globally following last month’s announcement of hefty US tariffs on imports.

“Inflation is in the target band and upside risks appear to have diminished as international developments are expected to weigh on the economy,” the board said in a statement.

“The board assesses that this move will make monetary policy somewhat less restrictive. It nevertheless remains cautious about the outlook.”