Why did the Reserve Bank keep interest rates on hold?
What did the Reserve Bank decide?
The Reserve Bank of Australia (RBA) kept the cash rate steady at 3.85%, choosing not to cut rates again after previous cuts in February and May.
Why didn’t they cut rates this time?
The RBA wants to see more proof that inflation is staying under control and moving towards its target of 2.5%. They decided it was best to wait for more data before making another cut.
Was this a surprise?
Yes. Financial markets had put a 90% chance on a rate cut, and Australia’s big four banks (ANZ, Westpac, Commonwealth, NAB) all expected rates to drop in July. Even Treasurer Jim Chalmers admitted it wasn’t what Australians or markets were hoping for.
What’s going on in the economy?
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Growth is weak: The economy grew only 0.2% in the March quarter, and 1.3% over the year — well below normal levels.
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Spending is soft: Retail sales barely moved, and people are spending less on food and household goods.
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Inflation has eased: Headline inflation fell to 2.1%, and the RBA’s preferred “trimmed mean” measure dropped to 2.4%, the lowest since late 2021.
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No wage-driven inflation: Wage growth is slowing, and there’s no sign of pay rises pushing prices up.
So why didn’t they cut again if inflation is under control?
The RBA pointed out that the June quarter inflation figures were slightly stronger than expected, so they want to be sure inflation will stay within the 2-3% target band. It’s a cautious pause, not a change in direction.
What happens next for interest rates?
Markets still expect two more cuts this year, possibly in August and November, which could take the cash rate down to 3.35% by the end of 2025. But that depends on how inflation, wages, and jobs data turn out.
What other risks is the Reserve Bank watching?
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The housing market: Home prices rose 0.4% in June and are up 4.6% over the year, partly because of earlier rate cuts and tight supply.
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Global uncertainty: Slow growth in Europe and China, plus trade tensions (especially between the US and China), are affecting investment and Australia’s exports.
What’s the bottom line?
The RBA is being careful. They want to make sure inflation stays under control before cutting rates again. They’re ready to act, but only when the data shows it’s safe to do so.