The Reserve Bank of Australia (RBA) shocked markets today by keeping the cash rate unchanged at 3.85%, defying widespread expectations for a 25 basis point cut.
The decision was made by a 6-3 majority vote, marking the first time the RBA has revealed its voting breakdown.
Key Takeaways:
- RBA held rates at 3.85% vs market expectations of a cut to 3.60%
- Board voted 6-3 in favor of holding rates
- Recent monthly CPI data came in “slightly stronger than expected”
- Board wants more confirmation that inflation remains on track for 2.5%
- Cited heightened uncertainty about global trade policies and domestic demand
Link to official RBA Monetary Policy Statement for July 2025
In her presser, Governor Bullock explained that the decision reflected a “cautious, gradual stance on easing.”
The central bank noted that with rates already 50 basis points lower than five months ago, they could afford to wait for additional data – specifically pointing to the upcoming quarterly CPI report on July 30th.
The RBA emphasized ongoing uncertainties, including:
- The full scope and impact of US tariff policies
- Tight labor market conditions despite economic softening
- Lags in monetary policy transmission
- Mixed signals on domestic demand recovery
Markets had priced in approximately 74 basis points of cuts by year-end before today’s decision, and the RBA’s language suggests further cuts remain likely once they gain more confidence in the inflation trajectory.
Link to RBA Press Conference for July 2025
Market Reaction:
Australian Dollar vs. Major Currencies: 5-min
Overlay of AUD vs. Major Currencies Chart by TradingView
The Australian dollar popped higher after the RBA’s surprise hold, breaking out of its earlier range following the Hong Kong and China market open.
AUD/USD jumped from the 0.6510 area to around 0.6550, with similar moves seen across other Aussie pairs.
While the immediate reaction was bullish for AUD, traders should note that the RBA hasn’t abandoned its easing bias. The rally paused during Governor Bullock’s press conference, where she emphasized that the board still agrees on the direction of rate cuts, just not the timing. That pulled AUD lower for a bit.
But the pullback was short-lived. By the time the London session rolled around, the Aussie was back on the move, climbing to new daily highs as more traders responded to the RBA’s less dovish surprise.
For now, the surprise hold appears to be more about prudent risk management given current uncertainties rather than a fundamental shift in the policy outlook. With four more meetings remaining in 2025, there’s still ample opportunity for the RBA to deliver additional easing if economic conditions warrant.
