At the July board meeting the Reserve Bank of Australia (RBA) kept the official cash rate on hold at 3.85%. This went against most opinions which believed the cash rate would be reduced.
After 2 rate cuts (0.50%) so far in 2025 the RBA shocked most people by keeping the official cash rate on hold at their July Board meeting.
In the official RBA statement following the decision they have outlined the reasoning behind the board’s decision.
Inflation has continued to moderate.
Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance.
In the March quarter, headline inflation, which has partly been affected by temporary cost of living relief, was at the midpoint of the target range while trimmed mean inflation was at 2.9 per cent.
The baseline forecast in May was for underlying inflation to continue to moderate to around the midpoint of the 2–3 per cent range with the cash rate assumed to follow a gradual easing path.
While recent monthly CPI Indicator data suggest that June quarter inflation is likely to be broadly in line with the forecast, they were, at the margin, slightly stronger than expected.
The outlook remains uncertain.
Uncertainty in the world economy remains elevated. While the final scope of 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.
Trade policy developments are nevertheless still expected to have an adverse effect on global economic activity, and there remains a risk that households and firms delay expenditure pending greater clarity on the outlook.
Setting aside overseas developments, private domestic demand appears to have been recovering. At the same time, various indicators suggest that labour market conditions remain tight.
There are uncertainties about the outlook for domestic economic activity and inflation stemming from both domestic and international developments.
There are also uncertainties regarding the lags in the effect of recent monetary policy easing and how firms’ pricing decisions and wages will respond to the balance between demand and supply for goods and services, tight conditions in the labour market and continued weak productivity outcomes.
Maintaining price stability and full employment is the priority.
The Board continues to judge that the risks to inflation have become more balanced, and the labour market remains strong.
Nevertheless, it remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and supply.
The Board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis.
What does this mean for you?
Basically, the RBA are taking a wait and see approach. The outlook for rates is still downward, however the RBA want to see if measures taken so far in 2025 will keep inflation within their target range.
The property market is still buoyant – mainly driven by demand and a lack of stock on the market.
There are still opportunities to save on your home loan with recent data still suggesting many Australians could save up to 1% pa on their home loan by considering alternatives.
If you’re keen to switch and save, or just have a free home loan review, get in touch with one of our local specialists today. We can also offer free property market info to help with your research.
Understanding your options can start with a simple phone, web, or in person discussion.
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