Cash Rate Decision
On the 8th July, 2025, the Reserve Bank of Australia (RBA) opted to leave the cash rate target unchanged at 3.85 per cent, following a 25-basis point cut in May 2025. This decision reflects the RBA’s preference to gather further data and prepare for unanticipated economic shocks and confirm that inflation is on a sustainable path back to the midpoint of its 2 – 3 per cent target range.
Despite headline and trimmed mean inflation moderating to 3.0 per cent and 2.9 per cent respectively in the March quarter, with temporary cost-of-living relief partially contributing to this result, the RBA noted that recent inflation readings were slightly stronger than anticipated. With the cash rate now 50 basis points lower than in early 2025, the RBA indicated in its Statement on Monetary Policy that it has decided to pause and reassess, while maintaining a data-dependent approach.
What Impacted the RBA’s Decision
The RBA acknowledged continued uncertainty both globally and domestically. Internationally, ongoing ambiguity around U.S. trade tariffs and geopolitical policy responses remains a key risk. While financial markets have responded optimistically, expectations of reduced global economic activity persist, with flow-on effects for Australian consumer and business confidence.
Domestically, there are signs of gradual recovery. Real household incomes have increased, and some indicators of financial stress have eased. However, private sector demand remains uneven, and many businesses are still struggling to pass on cost increases to consumers due to weak demand in some sectors. The labour market remains tight, with underutilisation at low levels and continued constraints in labour availability. Nonetheless, wage growth has softened from its peak, and productivity remains sluggish, which keeps unit labour costs high and contributes to pricing pressures.
The RBA also noted that while household consumption is forecast to improve as real incomes grow, the pace may be slower than previously expected. This could weigh on aggregate demand and lead to greater-than-anticipated deterioration in labour market conditions.
Moving Forward
The RBA continues to assess that inflation risks are more balanced than they were six months ago; however, it remains cautious, given the many moving parts in both the global and domestic outlooks. The effects of previous monetary easing are still unfolding, and uncertainties persist around business pricing behaviour, wage responses, and productivity trends.
The RBA again reaffirmed its dual mandate of achieving price stability and full employment, and signalled it is prepared to respond if new international or domestic developments materially impact Australia’s economic trajectory. Notably, the July decision was made by a majority, with six members in favour of holding rates and three against, highlighting a growing divergence in views within the independent board. In a move toward greater transparency, the RBA will now publish an unattributed record of votes following each meeting.
The RBA’s next monetary policy decision is scheduled for 12th August, 2025. The REIV will continue to monitor developments closely and update its members, particularly as interest rate settings remain highly influential on borrowing power, investment activity, and mortgage servicing ability across Victoria’s real estate markets.