CASH RATE
In a surprise move, the Reserve Bank of Australia (RBA) has left the official cash rate unchanged at 3.85%, defying widespread market expectations of a further cut. The decision came down to a divided board vote – six members in favour of holding, three advocating for a reduction, marking a shift from the consensus-driven outcomes typical of recent meetings.
The decision follows two earlier cuts this year and arrives amid weakening domestic growth, falling inflation, and rising concerns over global economic instability, particularly stemming from recent U.S. trade tensions.
RBA Governor Michele Bullock defended the call, stating, “Betrayal would be to let inflation get out of hand,” and reaffirmed that while mortgage relief is a priority, the board is watching inflation data closely before acting further. (The Guardian)
With quarterly CPI figures due at the end of July, markets are now looking to the RBA’s next meeting on 12 August for a potential move.
Key Takeaways from RBA’s Statement:
- Cash Rate on Hold at 3.85%: The RBA board voted 6-3 to pause further cuts, opting to wait for clearer inflation data before moving again.
- Split Decision Now Public: For the first time, the RBA has disclosed how board members voted, revealing a 6-3 split. This marks a new level of transparency around differing views on future rate cuts.
- Domestic Demand Gradually Improving: Real household incomes are rising and some financial stress indicators have eased, but demand recovery remains uneven across sectors.
- Labour Market Still Tight, Productivity Weak: While labour underutilisation is low, wages growth has moderated and weak productivity continues to drive high unit labour costs.
- Global Uncertainty Still a Key Risk: Ongoing trade tensions, particularly around U.S. tariffs, and delayed policy responses are weighing on business and household confidence.
Rate Expectations
(Source: ASX RBA Rate Tracker)
On the 8th of July the RBA left the official cash rate unchanged. The current official cash rate as determined by the Reserve Bank of Australia (RBA) remains at 3.85%.
As at the 9th of July, the ASX RBA Rate Tracker was indicating a 91% expectation of an interest rate decrease to 3.60% at the next RBA Board meeting.
Inflation
- May Inflation Data: The monthly CPI rose 2.1% in the 12 months to May, down from 2.4% in the 12 months to April. Annual trimmed mean inflation followed a similar downward trend, sitting at 2.4% in May, down from 2.8% in April.
- Monthly vs. Quarterly Data: While monthly CPI figures provide a snapshot, the full June quarter CPI report will be released in late July, giving a clearer picture of inflation trends, ahead of the next RBA decision on 12 August.
- Policy Implication: With the cash rate already reduced by 50 basis points in 2025 and broader conditions aligning with forecasts, the RBA chose to hold rates to “confirm that inflation remains on track to reach 2.5% on a sustainable basis.”
- RBA’s Forecast Path: Despite a more balanced inflation outlook, the RBA remains cautious, adopting a wait-and-see approach, due to uncertainty around the delayed effects of recent rate cuts, tight labour market conditions and weak productivity outcomes.
(Source: ABC)
Property Market Update
- Fifth Consecutive Month of Growth: National home values rose 0.6% in June, continuing a steady recovery since February’s rate cut and reversing declines seen late in 2024.
- Capital Cities Outpace Regionals (Monthly): Combined capital city values grew 0.6%, outperforming regional markets (0.5%) for the second month running. Darwin led the capitals with a 1.5% monthly gain.
- Outlook Remains Positive but Balanced: Rate cuts and low housing supply are expected to support further gains. However, affordability pressures, cautious lending, and geopolitical risks may limit the pace of growth.
(Source: Cotality HVI 1st July 2025)
Rental Market Update
- National Rent Growth Eases Further: Rents rose 1.3% nationally in the June quarter, marking the slowest Q2 increase since 2020, as demand and affordability pressures soften.
- House vs Unit Trends: House rents rose most in Hobart (+4.8%), Darwin (+4.5%), and Perth (+4.4%), while unit rents surged in Darwin (+9.0%), Hobart (+7.8%), and Perth (+7.5%) indicating tighter inner-city conditions.
- Supply Remains Tight Despite Listing Uptick: New listings lifted 11.1% from April lows, but total properties for sale nationally remain at their lowest level for this time of year since 2007—highlighting ongoing stock scarcity for both buyers and renters.
(Source: Cotality HVI 1st July 2025)
