The Reserve Bank of Australia has shocked markets and ignored the economic indicators it said it would follow, keeping the cash rate at 3.85% at the July meeting.
Nothing is certain in the world of interest rates. Markets had predicted nearly a 90% chance of a rate cut, with all of the Big Four banks revising their forecasts based on recent data to bring forward a rate cut to July.
However, Governor Michele Bullock and the Board voted in favor of keeping rates on hold. It was the first time the Reserve Bank published its new voting process, though the exact votes of each member were not disclosed. Six of the nine board members voted to keep the cash rate unchanged, while three favored a cut for consecutive meetings.
As always, we aim to provide a clear view of what the RBA is saying, the latest economic data, and how those in power at the big banks are interpreting it.
Governor Bullock emphasized that while inflation has moderated, the board requires more evidence to confirm that inflation is sustainably within the target band of 2–3%.
She did, however, leave the door open for another rate cut soon, with the upcoming quarterly inflation data, due for release on July 30, just a few weeks before the board meets again on August 12.
“With the cash rate 50 basis points lower than five months ago and wider economic conditions evolving broadly as expected, the Board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5% on a sustainable basis.”
The Board also noted that the recent monthly CPI Indicator data suggests that June quarter inflation is likely to be broadly in line with forecasts.
New commentary around tariffs from the US was introduced, with the Board acknowledging that “while the final scope of the US tariffs and policy responses in other countries remains unknown, financial market prices have rebounded with an expectation that the most extreme outcomes are likely to be avoided.”
Bullock consistently states that the Reserve Bank’s decisions will be based on data. While unemployment is closely monitored by the Board, the primary data point they focus on is inflation, or the Consumer Price Index (CPI). There are two types of inflation: headline inflation, which measures the overall change in consumer prices, and trimmed mean inflation, which excludes the most extreme price movements to provide a clearer view of underlying inflation trends.
Although the RBA focuses on quarterly inflation data, which includes all items in the CPI basket, there have been monthly updates in recent years to provide a more timely view. The monthly data, however, excludes volatile items such as utilities and holiday travel.
Since the Board cut rates in May, the April monthly CPI showed a 2.4% rise over the last 12 months, firmly within the RBA’s target range. The most recent monthly data for May, released at the end of June, showed further encouragement for a rate cut in July, with the data printing 2.1% for the year to May, well below the market median expectation of 2.3%. This data point prompted banks to bring forward their rate cut forecasts to July.
Just 12% of experts in Finder.com.au’s RBA Survey correctly predicted rates would hold at 3.85%.
Those who predicted the hold suggested that the RBA would prefer to see the official quarterly CPI data at the end of July—an approach the Reserve Bank has employed most of the time when making rate cut decisions.
Andrew Wilson from My Housing Market stated that the “current rate settings have achieved a balance between growing consistency in maintaining the RBA’s inflation target and a strong economy reflected in a robust and resilient labour market."
Speaking on house prices, REA Group Senior Economist Anne Flaherty noted that the decision to hold rates will have an impact:
“Today’s decision to hold may slow the pace of price growth seen in the months following the February and May cuts,” Flaherty said.
“Nationally, prices are up 3.2% since the start of the year, adding around $26,000 to the median price of a home. For many, affordability constraints continue to weigh heavily, as many households grapple with stretched budgets.”
Eliza Owen, Cotality’s Head of Research, argues that with falling inflation, weak retail sales data, and continued sluggish GDP growth per capita, the data strongly supports a rate cut in August.
Owen also commented on how the rate cuts have impacted the housing market:
“With lower interest rates increasing the minimum amounts that households can borrow, it is highly likely that increased borrowing will be reflected in higher home values,” she said. “Rising home values and lower rates may also stimulate more sales and listings, contributing to an uplift in economic activity through real estate services and new furnishings.”
Home values have already seen a broad-based increase in 2025, driven by lower interest rates. Since the first rate cut on February 19, through to July 7, Cotality’s daily home value index rose 2.3%, the equivalent of an $18,000 boost to the median dwelling value in Australia.
Prior to the July meeting, ANZ was the latest of the Big Four banks to change its forecast, bringing the rate cut forward from August to July. The bank’s decision came after data showed a weak six-month trend in retail sales.
“That decision likely reflects the RBA’s Monetary Policy Board concluding that a 25 basis point reduction in the cash rate in July is the path of least regret, rather than waiting for the August Statement of Monetary Policy and a full forecast update, as has been the RBA’s approach to the prior two rate cuts and the November 2023 tightening.”
ANZ did, however, caveat its forecast, suggesting that the meeting would be a “much closer call than market pricing would suggest.” ANZ now believes a cut will be delivered in August, as well as another cut “more likely than not.” They still expect the terminal cash rate for this easing cycle to be 3.35%.
Westpac’s commentary after the meeting suggested:
“We read the tone of the media conference as flagging that the rate cut is still on for August, provided the trimmed mean inflation rate for the June quarter does not surprise too much on the upside,” Westpac Senior Economist Luci Ellis said. “Accordingly, we reinstate the likely timing of the next cut to August, though there is a small chance even this is delayed.”
Westpac’s future forecast is for a spread-out delivery of rate cuts in November, February, and May, which would bring the official cash rate down to 2.85%.
NAB was also surprised by the decision to keep rates on hold.
“We continue to see a return to a more neutral policy stance as appropriate, though the RBA looks to be moving there more cautiously than we had previously expected,” said NAB Head of Economics Gareth Spence.
NAB still expects cuts in August and November and, given the lack of a cut in July, they’ve now added another for February.
Belinda Allen, a senior economist at Commonwealth Bank, believes an August rate cut “appears almost certain.”
“The next most likely timing of a rate cut is November, given the Board’s stated preference today to see the quarterly CPI before moving and to maintain a ‘cautious and gradual approach,’” she said, adding, however, that a risk remains of a cut in early 2026.
The Board will meet again on August 11, with the next cash rate decision to be handed down on Tuesday, August 12 at 2:30 pm. The rate call will likely be predicated on the release of the June quarter inflation figures on July 30, at 11:30 am.
The RBA will need to see the figure fall within their 2-3% target band. Should it fall in line with expectations, the RBA will have enough reason to cut rates to 3.6%.
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