RBA Minutes Reveal Caution in Rate Cut Decision

The Reserve Bank of Australia (RBA) decided against a third interest rate cut in four meetings, citing its "cautious and gradual" strategy. The minutes of the July meeting showed that a majority of members believed that lowering rates would not be consistent with their policy. The RBA had previously signaled a shift in focus to global economic risks and uncertainty, but now believes that the most severe downside scenarios are unlikely to be realized.

SYDNEY, July 2, 2025 - The Reserve Bank of Australia (RBA) has decided against a third interest rate cut in four meetings, adhering to its strategy of easing monetary policy in a cautious and gradual manner. The RBA's July 7-8 policy meeting minutes revealed that a majority of the nine-member board was wary of lowering rates too quickly, despite evidence suggesting that inflation was on track to return to the target range [1].

The minutes highlighted that while rates at 3.85% were still modestly restrictive, the extent to which they could be cut before becoming neutral was uncertain. The majority of the board judged that it was prudent to wait for more information, including quarterly price data, to confirm that inflation was slowing [1].

The RBA's decision to hold steady was a surprise to markets, which had heavily wagered on a rate cut following a monthly inflation report that showed the closely-watched trimmed mean measure hitting a 3-1/2 year low of 2.4% in May. The economy also barely grew in the first quarter as public demand sputtered [1].

The RBA noted that several data indicators had been in line with or slightly stronger than forecasts, pointing to the benefit of waiting for a little longer. The board also cited a pick-up in private demand and a stronger-than-expected labor market as reasons to wait [1].

The minutes also mentioned that the probability of the global economy evolving in line with the most severe downside scenarios had declined, although the future state of U.S. trade and other policies remained unpredictable [1].

Markets now imply around a 91% chance that the RBA will ease again at its next meeting on August 12, after a surprisingly soft jobs report raised concerns about the resilience of the labor market. Futures see rates bottoming around 3.10% by early next year [1].

The RBA's cautious approach to monetary policy reflects its focus on global economic risks and uncertainty, a shift from its previous stance. The central bank has signaled that it believes the most severe downside scenarios are unlikely to be realized, allowing it to take a more measured approach to rate cuts [1].

References:
[1] https://www.reuters.com/world/asia-pacific/australia-central-bank-wary-cutting-rates-too-quickly-prudent-await-more-data-2025-07-22/
[2] https://finance.yahoo.com/news/australia-central-bank-wary-cutting-013343561.html
[3] https://www.fxstreet.com/news/rba-minutes-board-agreed-further-rate-cuts-warranted-over-time-202507220136