RBA minutes expose hidden productivity challenges amid low rates

By Peter Terlato · · 2 min read
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Australia’s central bank has slashed the cash rate to 3.60%, the lowest it’s been in two years, providing mortgage holders with extra relief following cuts in February and May. But while households rejoice, the Reserve Bank of Australia (RBA) warns that slowing productivity and modest wage growth could weigh on long-term economic growth, signalling that cheap credit is not a cure-all and that the economy faces deeper structural challenges.

Productivity downgrade: a $30 billion wake-up call

This week, the RBA revised its productivity forecast downward from 1% to 0.7%, lowering Australia’s trend growth rate – the long-term average rate at which the economy can grow without causing a sustained increase in inflation – from 2.0% to 1.7%. This translates to an estimated $30 billion reduction in economic output over two years.

Economists warn that slower productivity can limit future wage growth, investment and overall living standards, even as households enjoy mortgage savings.

Quick facts:

Indicator Value
Cash rate
 3.60% (lowest since April 2023)
Productivity downgrade
 1% (historical benchmark) → 0.7% (2025)
Estimated output hit
 $30 billion over two years
Headline inflation
 2.1% (June quarter 2025)
Core inflation
 2.7% (June quarter 2025)
Unemployment
 4.2% (July 2025)

Borrowers benefit now, but bigger picture is complex

Major banks, including the Big Four, and a raft of smaller providers have already passed on the rate cut in full. Variable-rate borrowers could save hundreds per year, offering short-term relief amid rising household costs.

However, the RBA minutes show that low rates cannot fully offset structural weaknesses . Productivity is slowing, real wages are expected to grow modestly, and long-term economic growth may be constrained.

Inflation, jobs, and the data-driven outlook

Headline inflation has eased to 2.1%, while core inflation (trimmed mean) is at 2.7%, a three-year low. The labour market remains tight, with unemployment slightly below 4.5%, although signs of easing are emerging.

The RBA stressed that future rate changes will remain data-driven, depending on inflation trends, employment figures, and global economic conditions.

What this means for Australians

  • Variable-rate borrowers. Mortgage holders could save hundreds per year.
  • Savers. Likely to see ongoing lower returns on savings account interest.
  • Wages and spending power. May remain modest due to slower productivity growth.
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Make the most of lower rates

The RBA’s latest minutes show that while productivity growth is slowing, the central bank is keeping rates low to support households and the economy. For borrowers, this means a real opportunity to reduce mortgage repayments.

Even a small reduction in your variable-rate loan can save hundreds of dollars each year, giving you more flexibility in your budget while broader economic challenges remain.

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