SYDNEY, Aug 12, 2025 (BSS/AFP) - Australia's central bank cut its key interest rate to its lowest in two years on Tuesday, but warned global challenges continue to cause uncertainty.

The Reserve Bank of Australia cut the cash rate by 25 basis points to 3.60 percent, citing steady progress in bringing inflation down.

"Uncertainty in the world economy remains elevated," the bank's monetary policy board said in a statement.

"There is a little more clarity on the scope and scale of US tariffs and policy responses in other countries, suggesting that more extreme outcomes are likely to be avoided."

The board added that trade policy developments were expected to have "adverse effects on global economic activity".

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

Treasurer Jim Chalmers said the best defence against global volatility was "a more productive economy, a stronger budget, and more resilience".

"Economic uncertainty and volatility are prominent and defining features of the outlook around the world, but all the progress we have made together holds us in good stead," he said.

Although inflation has eased since its peak of 7.8 percent in December 2022, many Australian households remain burdened by the high cost of food, fuel, and housing.