The Reserve Bank of Australia’s (RBA) July monetary policy meeting went down as a shock decision to markets and commentators as the board announced a hold in the cash rate, leaving it at 3.85 per cent, contrary to almost unanimous predictions of another rate cut.
The decision came down to a six to three vote for a cash rate hold, with the minutes of the July meeting confirming the RBA held on to its “wait-and-see” rhetoric, opting to wait until more economic data was available and for global events to further unfold.
Additionally, the minutes revealed that the majority of members agreed that lowering the cash rate during the July meeting would be inconsistent with its broader easing strategy.
“[RBA members] believed that lowering the cash rate a third time within the space of four meetings would be unlikely to be consistent with the strategy of easing monetary policy in a cautious and gradual manner to achieve the Board’s inflation and full employment objectives,” the minutes stated.
According to the minutes, members observed it would be beneficial to wait for “a little more information”, namely the upcoming June quarter inflation figures, to confirm whether or not inflation was sustainably tracking towards the RBA’s coveted 2.5 per cent midpoint inflation target.
This was also predicated on several indicators being “in line with, or even slightly stronger than, staff projections”.
“Monthly indicators of inflation had been marginally higher than were consistent with the staff’s forecast for underlying inflation in the June quarter, growth in private demand in the March quarter had been a little stronger than expected and conditions in the labour market had so far not eased as anticipated,” the minutes stated.
Additionally, members deduced that the likelihood of the “most severe scenarios for the world economy” had been reduced since the May meeting, meaning more weight could be placed on baseline forecasts and “less on the downside scenario”.
Baseline forecasts had already factored in deterioration in global economic conditions due to US President Donald Trump’s sweeping tariff policies creating uncertainty.
The minutes stated that this was “consistent with the evidence currently available on how the trade tensions and other factors might be resolved”.
“Moreover, the forecasts had been conditioned on a relatively modest and gradual path of further easing of monetary policy over the period ahead,” the minutes read. “Hence, these developments supported the view that the board could wait a little longer for further confirmation of the economy’s trajectory before adjusting policy again.”
Meanwhile, the minority of members judged that there was already sufficient evidence supporting another cash rate cut, expressing confidence in the inflation rate being on track to return sustainably to the midpoint of the 2-3 per cent target range, "if not lower".
"This implied less need to wait before easing policy further, which was a relevant consideration given the lags in the effect of monetary policy on economic activity and inflation," the minutes stated.
These members also pointed to weak domestic GDP growth and an expected global slowdown, and warned that this could cause underlying inflation to fall faster than forecast.
To ease policy in July, they argued, would align with the RBA's strategy and help prevent excess spare capacity from emerging.
Reacting to the minutes, Commonwealth Bank of Australia (CBA) senior economist, Belinda Allen, remarked that the RBA "appears to be getting pretty close to forward guidance" in the statement "...the outlook was for underlying inflation to decline further in year-ended terms, warranting some additional reduction in interest rates over time".
"The current forecasts of the RBA have trimmed mean CPI at 2.6 per cent in 2Q26," Allen said. "The risk sits with a 2.7 per cent or even 2.8 per cent print... and depending on how the print lands, and the components could see a challenge for the RBA in communicating its easing strategy."
"Even so, the RBA will be aware of these upside risks and is still communicating an easing bias. This makes an August rate cut our base case."
ANZ head of Australian economics, Adam Boyton, noted the RBA seemed to suggest that it is not far from a neutral cash rate, with the board inferring that it is likely to be a little over 3 per cent.
"Taking policy lags into account, the neutral cash rate may be a little higher than that... Our cash rate view has not been changed by these minutes. We expect 25bp cuts in both August and November 2025," Boyton added.
