ISCOVER
The latest RBA minutes reaffirm the central bank’s commitment to a cautious policy path towards inflation and employment goals, resisting market pressure for a rate cut.
The Reserve Bank of Australia (RBA) has outlined that its decision to leave the cash rate unchanged in July 2025 was consistent with its strategy of easing monetary policy in a “cautious and gradual manner” to achieve the board’s inflation and employment targets.
The board decided by majority (six in favour, three against) to leave the cash rate target unchanged at 3.85 per cent on 8 July.
In its minutes for the July meeting, RBA board members discussed how best to assess the ‘neutral’ cash rate, with the most recent data suggesting that underlying inflation would stay around the midpoint of the 2–3 per cent target range and the labour market would remain close to full employment, assuming that the cash rate “followed the then-prevailing market path, which was for a gradual decline to a little over 3 per cent by mid-2026”.
“Those forecasts therefore suggested that the current setting of monetary policy was modestly restrictive,” the minutes stated.
The board also pointed to how trends in household credit growth showed the restrictiveness of monetary policy.
“Members noted that household credit had continued to decline gradually relative to household incomes, providing further corroboration of the judgement that monetary policy had been modestly restrictive,” the minutes noted.
The recent easing in policy had not yet resulted in a pick-up in demand for housing credit and neither loan applications nor loan commitments had increased materially, the board agreed on.
‘Little discernible effect’ from tariff wars
In making their rate decision for July, the board noted there had been “little discernible effect” from recent international developments and tariff announcements.
The minutes added that the developments remained consistent with the assumptions made in the baseline forecasts in May, which anticipated that the “overall economic effects would be relatively modest” and mostly occur in the second half of 2025 and into 2026.
Despite agreeing that the outlook for the global economy was “highly uncertain”, the board flagged that the probability of the most severe downside scenarios looked to have declined since the previous meeting.
However, it stated that the “future state of US trade and other policies was unpredictable and geopolitical tensions remained acute”.
RBA weighs market in decision making
The RBA minutes highlighted that the board considers market expectations in its decision-making process.
Members noted that a 25-basis point reduction in the cash rate at the meeting was “almost fully priced in by market participants and was also expected by most market economists”.
The minutes went on: “Members acknowledged that there had been previous occasions when market participants had been very confident about the outcome of a monetary policy decision but the (Reserve Bank) board had decided on an alternative course.”
Banks react to RBA minutes
Reacting to the minutes, Australia and New Zealand Banking Group’s (ANZ) head of Australian economics, Adam Boyton, said he saw three main points.
He explained that he believes that the board sees itself as being in an easing cycle, that its base case is still for a cautious and gradual easing cycle, and that it does not think it is a long way from neutral.
He reiterated ANZ’s cash rate forecast for 25-bp cuts in both August and November 2025.
Commbank’s (CBA) senior economist Belinda Allen said the July minutes highlighted a cautious board that wants to wait and see quarterly inflation data before reducing the cash rate again.
Allen said the major’s base case is for a 25-bp rate cut in August as long as the annual trimmed mean CPI continues to moderate from its current rate of 2.9 per cent.
However, she cautioned that “it is not a done deal” and that CBA expects another rate cut in November with the risk of an additional cut in early 2026.
The second quarter inflation data due next week is critical, she added.
National Australia Bank’s (NAB) senior markets economist Taylor Nugent said the key takeaway from the meeting minutes was that the discussion centred around appropriate timing and extent of easing, not the direction.
The major continues to forecast cuts in August, November, and February to lower rates to 3.1 per cent.
Westpac’s chief economist Luci Ellis flagged that the discussion on inflation in the minutes reflected the RBA’s “caution and understandable reluctance to declare victory on getting inflation back to target”.
She added that the case to hold largely relied on some recent data coming in marginally stronger than RBA staff forecasts, along with receding risks of the more severe trade scenarios.
Commenting on the link between interest rates and house prices, AMP chief economist and head of investment strategy, Shane Oliver, said that average prices are expected to rise 5–6 per cent this year, boosted by falling rates.
“Lower rates are a key driver of the current upswing in prices. The average gain over the subsequent 12 and 18 months is 3.9 per cent and 8 per cent,” Oliver added.
AMP Bank economists have set a base case for 0.25 per cent rate cuts in August, November, February, and May. However, they flagged this may occur faster, with back-to-back cuts in August and September, if there are increasing signs of labour market weakness.
[Related: RBA surprises with cash rate decision]
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