RBA: most agreed prudent to await confirmation on inflation slowdown before easing

RBA: most agreed prudent to await confirmation on inflation slowdown before easing

The Reserve Bank of Australia (RBA) has maintained its stance on interest rates, with the majority of the board agreeing that further rate cuts should be delayed until there is confirmation of a slowdown in inflation. This decision, announced in the minutes of the July monetary policy meeting, reflects the central bank's cautious approach to monetary policy.

The RBA's decision to hold rates at 3.85% was a surprise to markets, which had expected a cut. The board's majority judgment was that rates were still modestly restrictive, but it was difficult to determine how far they could be cut before becoming neutral. The uncertainty surrounding the extent of policy restrictiveness and the need for more data to confirm the inflation slowdown led to this decision [2].

The board's cautious approach is evident in its consideration of the potential impacts of rate cuts. While some members argued for a rate cut, citing evidence that inflation was on track to be sustainably back to the target, the majority felt that waiting for more data was prudent. The RBA noted that even though economic growth was muted in the first quarter, a pick-up in private demand was stronger than expected, and the labor market had not eased as expected [2].

The RBA also considered the global economic outlook and the uncertainty surrounding U.S. trade policies. The central bank noted that the probability of the global economy evolving in line with the most severe downside scenario had declined, but the future state of U.S. trade and other policies remained unpredictable [2].

The decision to hold rates has had an immediate impact on the Australian dollar and bond markets. The AUD/USD is trading 0.08% lower on the day, and bond futures have fallen sharply. Investors are now pricing in an 85% probability of a 25-basis-point rate cut at the next meeting on August 12 [3].

The RBA's cautious approach reflects its dual mandate of maintaining price stability and supporting full employment. The rising unemployment rate, which increased to 4.2% in trend terms, highlights the challenges the economy is facing. However, the central bank's assessment of the labor market suggests that it remains tight, and the underemployment rate is at 5.9% [3].

In conclusion, the RBA's decision to hold rates reflects its cautious approach to monetary policy. The central bank is waiting for more data to confirm a slowdown in inflation before considering further rate cuts. This decision is a response to the uncertainty surrounding the global economy and the need to balance the risks of inflation and unemployment.

References:
[1] https://www.mitrade.com/insights/more/mores/fxstreet-AUDUSD-202507221001
[2] https://www.reuters.com/world/asia-pacific/australia-central-bank-wary-cutting-rates-too-quickly-prudent-await-more-data-2025-07-22/
[3] https://www.ainvest.com/news/australia-rising-unemployment-crossroads-monetary-policy-markets-2507/