SYDNEY, May 20, 2025 (BSS/AFP) - Australia's central bank cut its key interest rate to its lowest in two years on Tuesday, but warned US tariffs continued to shroud the national economy in uncertainty.

The Reserve Bank of Australia cut the cash rate by 25 basis points to 3.85 percent, citing steady progress in bringing inflation under control.

But "considerable uncertainty" remained, officials warned, pointing to the unfolding global response to US President Donald Trump's tariffs.

"These developments are expected to have an adverse effect on global economic activity," the bank's board said in a statement.

"Particularly if households and firms delay expenditure pending greater clarity on the outlook."

The cash rate is now at its lowest since May 2023.

The cut follows a similar reduction in February -- the first time the bank had lowered borrowing costs since November 2020.

"We know that the job is not finished, we know that there is more work to do, but we welcome it," Treasurer Jim Chalmers told reporters.

Like most major central banks, Australia hiked rates in an effort to tame soaring inflation stoked by Covid-19 and the outbreak of war in Ukraine.

Inflation has dropped from a peak of 7.8 percent in December 2022 and now sits at 2.4 percent, according to Reserve Bank figures.

Although price pressures have eased, many Australian households remain burdened by the high cost of food, fuel, and housing.