Despite market expectations of a third cut this year, the RBA held off on dropping the official cash rate by holding it at 3.85% today.
The RBA explained its pause today as being necessary in order to ascertain that inflation was indeed on the right track.
‘The [RBA] 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.
‘Monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia,’ concluded the Central Bank.
Leading up to today’s update, almost all market experts were tipping a cut.
Many argued that rates needed to come down to stimulate Australia’s sluggish economy, particularly given the recent instability in the Middle East and the potential effect that could have had on oil prices in Australia’s economy.
Arguments for a cut are reinforced by stable inflation data and GDP growth in Australia.
Australia’s inflation rate is 2.4% for the March quarter – within the RBA’s preferred range of 2-3%. The Central Bank’s mandate is to keep inflation within this range.
But the Australian economy grew just 0.2% in the March quarter (and just 1.3% annually). A spending stimulus, argued by many experts, was needed today.
That said, the RBA argued that it has acted decisively by bringing down the official cash rate from 4.35% at the start of the year to the current rate of 3.85%, following cuts in February and May.
‘With the cash rate 50 basis points lower than five months ago and wider economic conditions evolving broadly as expected, 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,’ explained the RBA.
The board added: ‘Uncertainty in the world economy remains elevated. While the final scope of US tariffs and policy responses in other countries remains unknown.’
Looking ahead, market economists are offering perspectives on the likely trajectory. Many banks are now tipping two to three cuts this year.
AMP Deputy Chief Economist Diana Mousina, for example, predicts the official cash rate could settle around 2.85% by the time this current easing cycle concludes by the first half of 2026.
Most experts are tipping two or even three more cuts this year, although some analysts are actually predicting an increase the next time RBA governor Michele Bullock gathers her team together. The next board meeting update will be on 12 August.
If you are considering reviewing your current arrangements, reach out to Mortgage Broker Sydney.
Our friendly brokers can meet you wherever is most convenient: your home, office, or a local cafe.
In addition, we are here to guide you on various strategies such as uncovering lower rates, enhancing savings, consolidating debts, and alleviating the impact of rising household prices.
Michael began his career in the finance industry over 35 years ago. He progressed through the ranks at the CBA in both retail and corporate lending, culminating in a senior position as a Corporate Relationship Executive. His decision to leave the bank in 2003 to become an independent mortgage broker was driven by his desire to assist everyday customers break through the jargon of the banking world and access the best loan products in the market. His experience is wide-ranging from helping first time buyers to large commercial enterprises. What Michael doesn’t know about home loans, simply isn’t worth knowing!