The Reserve Bank of Australia (RBA) lowered the official cash rate by 25 basis points to 3.85% on Tuesday in line with market expectations as inflation continued to moderate, while flagging a still-tight labor market and global uncertainty.

In its monetary policy statement, the central bank projects underlying inflation to be around the midpoint of its 2% to 3% target range throughout much of its forecast horizon. Headline inflation, meanwhile, is expected to rise to around the top of its target range over the coming year.

Official data showed that Australia's headline annual inflation was steady at 2.4% in the March quarter. The annual trimmed mean CPI, the RBA's preferred inflation indicator, eased to 2.9% from 3.3%.

The board said its Tuesday decision will make the monetary policy "somewhat less restrictive."

"It nevertheless remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and supply," the statement added.