Citing easing inflation, the Reserve Bank of Australia (RBA) cut its key policy rate to 4.10 % from 4.35% on Monday.

"Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance," explained the RBA, in a prepared statement. "In the December quarter underlying inflation was 3.2%, which suggests inflationary pressures are easing a little more quickly than expected."

In addition, wage pressures are easing, said the RBA.

The RBA has an annual inflation target of 2% to 3% on the nation's consumer price index.

The nation's official inflation rate struck a recent high of 7.8% in the fourth quarter of 2022, as a result of COVID-era restrictions, and government fiscal and monetary stimulus.

The headline inflation rate generally cooled through 2023 and 2024, although the "underlying" inflation rate mentioned by the RBA, and akin to a core rate, has stayed above 3%.

The RBA, to counter inflation, began raising its cash rate in July 2022, lifting it by increments from 0.10% to 4.35% by November of 2023, where it remained until the Monday 0.25% rate cut.

On economic growth, the RBA expects gross domestic product (GDP) to grow more quickly in 2025 than in 2024. Domestic "GDP growth is expected to pick up over the next year as consumption growth recovers and growth in public demand remains strong," said the central bank.

The RBA released a table that indicates Australia's GDP is expected to rise 2.4% on year in 2025, compared with a modest 1.1% gain in 2024.

However, there are potential pitfalls for the GDP outlook, said the RBA.

"The central projection is for growth in household consumption to increase as income growth rises. But there is a risk that any pick-up in consumption is slower than expected, resulting in continued subdued output growth and a sharper deterioration in the labor market than currently projected," advised the RBA.