👉 Background: The Reserve Bank of Australia is Australia’s central bank that sets the official cash rate to try and manage inflation and driving economic activity. After a pause in April, analysts were VERY bullish on a rate cut, with some predicting a jumbo cut of 0.5% — looking at you NAB.

👉 What happened: Now, the RBA came, saw and conquered with a cash rate cut of 0.25% which cuts the cash rate down to 3.85%. And that’s the lowest cash rate we’ve had in over two years. But, despite falling inflation, the RBA is still side-eyeing the global economy.

👉 What else: RBA warned that they still don’t know how the US’ on-again-off-again tariffs will impact the Australian economy… but it’s not looking good. And locally, the RBA has its eye on the low unemployment rate. Not to forget, Australia’s productivity rate has been flatlining… which is not a good sign for a growing economy.

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What's the key learning?

💡Productivity is one of the RBA’s key inflation indicators because when workers produce more without costing more, prices stay steady. In simple terms, productivity measures how much output is produced per unit of input (usually per hour of labour).

💡When the productivity rate goes up, it means businesses can afford to increase wages or output without raising prices. But when productivity is flat or goes down, then businesses can only afford to increase wages or produce more by increasing prices of their products or services.

💡And increased prices leads to growing inflation which is a big no-no in the RBA’s eyes. While inflation has slowed, productivity in Australia has barely moved in the last five years. In fact, in 2023, it actually fell by 3.7% which was the biggest drop since records began in the '70s. So this is still very much on the RBA's watchlist.