MELBOURNE, Australia (AP) – On Tuesday, Australia's central bank, the Reserve Bank of Australia (RBA), announced a reduction in its benchmark interest rate by a quarter percentage point, bringing it down to 3.85%. This marks the second rate cut of the year, following a decrease from 4.1%. The decision comes as inflation rates fell within the bank's target range, prompting the RBA to adjust its monetary policy accordingly.

The latest rate cut from 4.35%, which occurred during the board meeting in February, represents the first reduction in interest rates since October 2020. Market analysts had largely anticipated this move, although expectations shifted slightly after the recent agreement between the United States and China to temporarily pause tariff hikes for 90 days. This development has the potential to revive trade between these two major economies, which could influence inflation dynamics globally.

The RBA's primary goal in adjusting interest rates is to manage inflation within a target band of 2% to 3%. According to reports from the March quarter, the annual inflation rate recorded was 2.4%. In addition, the trimmed mean, a key measure of underlying inflation favored by the RBA, stood at 2.9%. This figure reflects a method that excludes extreme values to provide a clearer picture of price movements.

Inflation rates have shown a steady trend, with the figure remaining at 2.4% for the three months leading up to the March quarter. However, the underlying inflation measure, which accounts for outliers, climbed to 3.2% in the final quarter of 2022. It is notable that inflation peaked at 7.8% during the last quarter of 2022 but has since observed a gradual decline.

In terms of employment, the unemployment rate saw a slight increase from 4.0% in the December quarter to 4.1% during January-March. Despite this marginal uptick, the unemployment rate remains considered relatively low. Nevertheless, economists express concern that a potential shortage of workers could contribute to rising inflationary pressures in the near future.

This combination of monetary policy adjustments and labor market dynamics underscores the ongoing challenges faced by the RBA as it navigates a complex economic landscape. The bank remains focused on ensuring that inflation is kept in check, while also addressing potential labor market constraints that could impact economic growth.