Industry reacts to RBA’s “surprise” rate hold

Yasmine Raso

Senior Journalist, Financial Newswire

9 July 2025

The Reserve Bank of Australia’s (RBA’s) latest policy move to hold the official cash rate at 3.85 per cent has effectively shocked the market, which for weeks had remained steadfast in the assertion that a 25-basis-point cut was to be the result of yesterday’s monetary policy decision.

Anne Flaherty, REA Group Senior Economist, said the central bank had “defied widespread expectations of a cut”.

“The decision comes despite recent data showing inflation is easing and economic growth is weaker than anticipated,” she said.

“While the Reserve Bank made the decision to hold today, most forecasters anticipate further cuts to the cash rate before the end of the year. Today’s decision to hold may slow the pace of price growth seen in the months following the February and May cuts.

“Nationally, prices are up 3.2% since the start of the year, adding around $26,000 to the median price of a home. For many, affordability constraints continue to weigh heavily, as many households grapple with stretched budgets.”

This sentiment was echoed by Dwyfor Evans, Head of APAC Macro Strategy at State Street Markets, who confirmed the decision was a “surprise… to consensus forecasts” but acknowledged the RBA’s reasoning behind the decision to pause.

“The accompanying statement highlighted the strong labour market but a more balanced view on inflation, but the 6-3 decision stemmed largely from continued uncertainty on the outlook for demand and supply – particularly a pick-up in the former – and the medium-term trend for inflation towards target,” he said.

“Our PriceStats online inflation series for Australia has alluded to higher than target inflation for some time, but the renewed vigour in the housing markets has given the RBA additional reasons to pause for now. A hiatus in the easing cycle, pending further clarity on medium-term inflation trends and a short-term boon for the AUD.”

Krishna Bhimavarapu, APAC Economist at State Street Investment Management, called the decision to hold “a little perplexing” and hinted at the possibility of a heightened rate reduction in August.

“We have been tracking weak momentum in the economy, which was hinted in the Q1 GDP data recently. The Aussie consumer is vulnerable to high rates given their high household debt and its associated servicing costs (see chart below); we suspect if this has been a dynamic that has been holding back consumption,” he said.

“For this reason, we still see the cash rate reaching 3.10% by December, with the possibility of a larger cut in August now in play.”

Adam Bowe, Executive Vice President and Head of Australia Portfolio Management at PIMCO, emphasised the firm’s position that the RBA will continue its easing trajectory.

“The statement noted an outlook that was little changed from their last meeting, acknowledged that uncertainty around the outlook was elevated but they required a little more information to confirm that inflation remains sustainably on track towards target.

“Despite maintaining the policy rate at 3.85% today, restrictive monetary policy continues to weigh on growth and inflation which will keep the RBA on a gradual easing path. With evolving evidence that inflation is now firmly within the RBAs target band of 2-3%, limited evidence of a material pick up in domestic growth, and rising global risks around geopolitics and trade, the time for restrictive monetary policy has now passed.

“Today’s meeting outcome does not alter our medium term view and in fact confirms our quarterly cut thesis.

“With inflation within the RBA’s target band and expected to stay there, alongside a labor market that appears roughly balanced, we continue to anticipate the RBA will lower the cash rate toward neutral.

“Rising global trade barriers in addition to geopolitical tensions pose downside risks to regional growth, increasing the likelihood of a steeper rate-cutting cycle by the RBA and a terminal cash rate below 3.0%.”