The Reserve Bank’s decision to leave interest rates unchanged at 3.85 per cent has triggered a wave of disappointment across markets, mortgage holders, and a fair chunk of the country. For the first time since beginning its easing cycle earlier this year, the Board paused, choosing not to deliver what many expected to be a third consecutive cut. It wasn’t a quiet decision either. Three of the nine board members voted for a cut, a fact now public thanks to a new move towards greater transparency.
“This is not the outcome that millions of Australians were hoping for or the outcome that economists or the market was expecting,” said Treasurer Jim Chalmers, treading carefully to avoid any sense of political interference. “But the transparency is welcome,” he added, referring to the release of unattributed votes, a first for the central bank.
Expectations had been firmly leaning towards a 25 basis point cut. A Reuters poll showed 31 of 37 economists forecasting it. Futures markets had priced in the probability. Even mortgage calculators had it worked in, with homeowners anticipating a $100-a-month reprieve on a $660,000 loan. But the RBA held its ground, citing the need for “a little more information” to confirm inflation is heading back to the 2.5 per cent target “on a sustainable basis.”
June CPI data, due later this month, now looms large. RBA Governor Michele Bullock gave the strongest hint yet that a cut could still come in August, provided there are no surprises. “As long as the June CPI isn’t a surprise,” she reportedly said in post-meeting remarks, acknowledging the centrality of that data point.
On the data front, the RBA acknowledged that trimmed mean inflation came in at 2.9 per cent for the March quarter, headline at 2.4, both comfortably within the target range for the first time in nearly three years. And yet, the bank expressed concern that monthly inflation readings in June were marginally stronger than expected.
Labour market tightness remains one reason for the cautious tone. Though employment growth has slowed, conditions remain strained enough to worry the Board about potential wage pressures. Global uncertainty too, particularly around US tariffs and ongoing geopolitical tensions, figured heavily in the decision. The bank is walking a tightrope: not wanting to trigger inflationary pressure by cutting too soon, while aware that too much delay risks stalling household spending and confidence.
Economists are divided, with ABC News reporting that Diana Mousina called the RBA’s decision “incorrect,” arguing that both inflation and retail figures warranted a cut. “It seems like the Reserve Bank is not putting as much focus on the monthly inflation indicator,” she said. David Bassanese, by contrast, supported the decision to wait, suggesting the Board is wisely holding out for the quarterly CPI report later this month.
Financial markets reacted swiftly. ASX futures stumbled, and expectations for a cut in August hardened. Analysts now broadly expect the next move down to come then, barring any upside surprises.
Chalmers used the press conference to frame the broader context: “We’ve made substantial and sustained progress on inflation. Those two interest rate cuts earlier this year are already in the system and are helping.” He stressed the importance of not second-guessing the bank, even while acknowledging that the decision landed contrary to both market and public sentiment.
He also welcomed the transparency now embedded in the process. “This is a big step forward. It’s appropriate that Australians know whether the board was unanimous or not,” he said. While he refused to say whether he agreed with the decision, he reiterated that the central bank must be free to deliberate without political interference.
When pressed on whether he discusses voting decisions with Treasury Secretary Dr Steven Kennedy—who sits on the board—Chalmers replied flatly, “No. I don’t know how the Secretary voted. I don’t discuss it with her. That’s not how it works.”
The broader global backdrop is hard to ignore. US tariffs, including potential moves by a second Trump administration, are casting a long shadow. While Australia hasn’t been directly hit in the latest rounds, Chalmers noted the risk to global demand. “These tariffs are bad for the US, bad for Australia and bad for the global economy,” he said.
China was also mentioned, with speculation mounting ahead of Prime Minister Albanese’s visit to Beijing. Chalmers didn’t rule out expanding trade agreements to include areas like AI in healthcare or green tech but made clear there would be no easing of foreign investment scrutiny in sensitive sectors like data or infrastructure.
As for what comes next, Governor Bullock reiterated that decisions will be data-driven. The Board remains “focused on its mandate to deliver price stability and full employment,” she said. Chalmers echoed that line, emphasising that “progress has been made, but the job’s not done.”
The RBA’s next meeting in August now carries more weight than usual. One weak inflation print might just tip the balance. Until then, borrowers will have to sit tight, as the board continues to watch, wait and weigh its next move.
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💸 @RBAInfo holds rates at 3.85%, surprising markets & #mortgage holders. 📊 3/9 members voted for cut in historic transparency move. 🔍 August cut likely if June #CPI data cooperates. #TheIndianSun @JEChalmers @michelebollock
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