Key Summary:
- The RBA left the cash rate unchanged at 3.85% on 8 July 2025, surprising markets that had priced in a 97% chance of a cut.
- The Board cited global uncertainty and a need for further inflation and labour market data, with a 6–3 vote split revealing internal debate.
- A softening labour market and inflation within target have increased the likelihood of a 25 basis point cut at the next meeting on 12 August 2025.
On July 8, 2025, the Reserve Bank of Australia (RBA) held the official cash rate steady at 3.85%, surprising markets and defying the consensus expectation—supported by the “Big Four” banks (CBA, Westpac, NAB, ANZ)—that a 25 basis point cut would be delivered. This expectation was reflected in the ASX RBA Rate Tracker, which suggested a 97% probability of a cut prior to the meeting.
The RBA's rationale focused on ongoing global economic uncertainties and a desire to see more data, specifically the Q2 CPI and further labour market information, before adjusting policy. In its statement, the RBA emphasised the need for “a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis.”
Market and Economist Expectations
Markets, as well as the Big Four banks, had widely anticipated a July cut, which would have reduced the cash rate to 3.60%. The overwhelming expectation was founded on recent low inflation readings and a stable unemployment rate.
After the July decision, consensus shifted to expect a rate cut in August 2025, with the ultimate endpoint of the easing cycle varying in forecasts from a 2.85% terminal rate (Westpac) to 3.35% (ANZ, CBA).
Inflation and Labour Market Trends
Recent data showed headline CPI for May rising by 2.1%, the lowest level since October 2024, and within the RBA’s 2–3% target range. Trimmed mean inflation came in at 2.9% in the March quarter and 2.4% in May. The unemployment rate stayed at 4.1% as of May 2025, better than what RBA forecasts had previously assumed.
It was noted that some of the measured moderation in inflation, particularly in the headline figure, reflected government subsidies for energy costs. The RBA communicated caution in interpreting these effects as necessarily reflecting sustainable disinflation.
Statements from RBA Governor Michele Bullock
RBA Governor Michele Bullock clarified in her post-meeting comments that the Board remained on an “easing path,” but the timing would be dependent on key data, especially the next CPI release and labour statistics. She indicated the Board’s priorities were guided by domestic inflation and employment data. Phrases such as “timing, not direction” summarise this outlook, though only paraphrased in media, not used as a direct quote.
Bullock also discussed challenges relating to wages and productivity, noting that wage growth had recently outpaced productivity growth, and that Australia’s productivity was at historic lows. However, her statements were more analytical than quoted; precise language should not be attributed unless present in the public record.
International and Geopolitical Influences
The RBA commented on heightened global uncertainty, particularly relating to trade policy and external shocks, as factors in its restrained policy stance. Official statements and briefings referred generally to international risks and did not provide specific commentary on the US administration’s policies or any “Liberation Day” tariffs. Any assertions about detailed geopolitical scenarios should be considered analysis, not direct attribution to the RBA or Governor Bullock.
Domestic Economic Snapshot
- Inflation: Headline CPI was 2.1% in May, with trimmed mean inflation at 2.4%. The RBA highlighted that temporary subsidies may have contributed to lower figures.
- Labour Market: Unemployment remained steady at 4.1%; job vacancies began to decline, and wage growth (as measured by the Wage Price Index) reached 3.4% to March 2025.
- Productivity and GDP: GDP growth was subdued at 1.3% (year to March quarter), with GDP per capita slipping into negative territory. Productivity growth remained a concern.
- Consumer Confidence: Retail sales and consumer confidence remained weak, reflecting the ongoing effect of higher rates.
Big Four Banks’ Forecasts Post-July
The next scheduled RBA monetary policy announcement is on Tuesday, August 12, 2025, at 2:30 p.m.
Implications for Homeowners and the Property Market
A 25 basis point rate cut would reduce typical mortgage repayments. For a $600,000 mortgage, the saving would be around $90 per month, assuming borrowers receive the full rate cut. For larger mortgages, monthly savings are higher.
Mortgage Repayment Examples (25bp rate cut, 25-year loan term)
Note: Calculations are illustrative and may not reflect all lenders’ offerings.
Housing and Rental Market Trends
National property prices continued to climb despite higher interest rates, rising by 4% in June 2025 and 4.6% over the year. Structural supply shortages—made worse by rising construction costs—are a key driver, and lower interest rates are considered likely to further boost demand rather than resolving affordability challenges.
Rental markets remain tight, particularly in regions like Brisbane which have low vacancy rates and rising rents. While lower rates can ease some pressure on landlords, structural supply-demand imbalances persist.
Will There Be a Rate Cut in August?
The likelihood of an August rate cut has increased notably due to clear signs of a softening labour market. The latest data show Australia’s seasonally adjusted unemployment rate rising to 4.3% in June 2025—the highest level since November 2021, and an uptick from the 4.1% holding pattern seen over the previous five months. This rise was driven by a marginal increase in employment (+2,000 jobs, well below market expectations) and a significant jump in the number of unemployed people (+33,600). Full-time employment actually fell during the month, while part-time jobs rose, and total hours worked decreased, all pointing to weakening job market momentum.
These developments add to the case for monetary easing. Persistently subdued retail activity and falling confidence, combined with inflation readings that now lie within the RBA’s target, are creating mounting pressure for the RBA to provide stimulus. Economists and market pricing continue to overwhelmingly anticipate a 25 basis point cut at the August meeting.
With the labour market softening and inflation moderating, the RBA is widely expected to move ahead with its first rate cut of the year in August—barring an unexpected shock in incoming data before the decision.