Rates kept on hold in surprise Reserve Bank decision
The cash rate will remain unchanged at 3.85 per cent, defying expectations second consecutive cut in July.
The Reserve Bank has kept the cash rate on hold in a move that will disappoint borrowers hoping for further mortgage relief.
The surprise decision went against expectations of most traders and economists, who were leaning towards a 25 basis point cut to reflect under-control inflation and sluggish retail spending.
The decision was not unanimous, with the RBA majority vote winning out, six in favour of holding, three against.
Yet the enduringly strong jobs market and home prices trending higher suggest the economy is still in decent shape, proving enough to keep the central bank cautiously on the sidelines for a bit longer.
The RBA board said maintaining price stability and full employment was the priority.
“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,” the post-meeting statement read.
“It noted that monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia.”
You might like
Further cuts on the horizon, Deloitte says
Head of Deloitte Access Economics, Pradeep Philip said they still expect further cuts later in the year.
“Deloitte Access Economics still expects a further 50 basis points of rate cuts in the remainder of 2025, followed by another 50 basis points in 2026,” Philip said.
“If that plays out, the cash rate would fall to 2.85 per cent, which is close to the Reserve Bank’s latest estimate of the nominal neutral rate at 2.7 per cent.”
Philip said the RBA’s “wait and see approach” this month was “cautious”.
“Over recent months, the World Bank, the IMF, and OECD have all lowered global growth forecasts, primarily based on trade uncertainty,” he said.
“We are now in a world where geopolitics is driving economics. In this context, a rate cut would have been a sensible move akin to taking out insurance to support the Australian economy by helping rebuild business confidence to drive investment.
“Domestically, with inflation continuing to come down and government spending still supporting the economy, our biggest economic challenge remains boosting business investment to lift productivity. This provides a clear case for the continued easing of monetary policy.”
Stay informed, daily
A buyer’s market
Had the RBA made the predicted further cut, it would have saved homeowners about $90 a month on a typical $600,000 mortgage.
Finance Brokers Association of Australia managing director Peter White AM said whatever the RBA does today, “there has not been a better time to enter the property market”.
“If the RBA cuts interest rates today as is widely tipped, this will incentivise more people to enter the housing market,” White said.
“Whatever the RBA does, when you consider the new places that have opened up with Australia’s Home Guarantee Scheme and other government incentives, there has not been a better time to enter the property market or refinance since rates started to rise in 2022.
“This is somewhat balanced by a housing market that is under pressure due to supply issues, so new entrants into the market should act quickly before prices rise further.”
White encourages buyers to talk to their mortgage broker as now is a good time to refinance and to remember “there are many lender options apart from the big banks”.
While this year’s earlier cuts have delivered relief for cash-strapped buyers, most of those with variable mortgages have not lowered repayments as interest rates have fallen.
CommBank, which holds about a quarter of the mortgage market, said just one in 10 customers had reduced their repayments after the Reserve’s last cut to the official interest rate in May.
“Only a small percentage of customers are freeing up their cash, while most are maintaining higher repayments to get ahead on their loans,” said Tess Sutherland, general manager of the bank’s home buying team.
Economists at Commonwealth Bank, ANZ and NAB had predicted a further cut in August, while Westpac has tipped a pause before another cut in November and two more in 2026.
That would send the cash rate to 3.15 per cent and amount to 135 basis points worth of cuts in the space of about 12 months. In all, that would shave almost $500 a month in repayments off a typical $600,000 mortgage from before February.
