Citing moderating inflation, the Reserve Bank of Australia (RBA) reduced its key policy interest rate to 3.85% from 4.10% on Tuesday.

"Inflation (in Australia) has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance," said the RBA, in a prepared statement.

Australia's inflation, as measured by the nation's consumer price index and related measures, is within RBA targets, the central bank added.

"At 2.9%, annual trimmed mean inflation was below 3% for the first time since 2021 and headline inflation, at 2.4%, remained within the target band of 2% to 3%," reported the RBA.

The Australian central bank, like many others globally, faced higher inflation rates during and in the aftermath of the COVID-19 era.

Australia's reported rate of inflation on the nation's headline consumer price index (CPI) reached a crest of 8.4% in December of 2022. Since then, the inflation rate has generally trended lower, to its present mid-2.0% range.

To combat inflation, the RBA raised its key policy rate from 0.1% in April of 2022 to a peak of 4.35% by November of 2023. The central bank then held that rate unchanged until February of this year, when it was lowered to 4.1%, before the Tuesday rate cut.

The Australian economy may be buffeted by international developments and the US Trump Administration trade tariffs, said the RBA.

"While recent announcements on tariffs have resulted in a rebound in financial market prices, there is still considerable uncertainty about the final scope of the tariffs and policy responses in other countries," said the RBA.

Some RBA observers said the central bank may be moving too slowly in easing rates.

"Sally Auld, chief economist of the National Australia Bank, believes the RBA board has a unique window of opportunity with inflation dropping to give the economy a jump-start via a much-needed double rate cut of 50 basis points, to thwart economic headwinds," reported news.com.au.