Why the RBA held the cash rate steady.

In July, many experts expected the Reserve Bank of Australia (RBA) to cut interest rates. Inflation seemed under control, and cost-of-living pressures continue to weigh heavily on Aussie households. But instead, the RBA chose to keep the cash rate steady.

So, why didn’t they cut rates? Let’s break it down in simple terms.

Inflation is better but not quite there yet.

Inflation has dropped to 2.4%, which is within the RBA’s target range of 2-3%. That’s a good sign. But the RBA doesn’t just look at the headline number, they dig deeper.

When they did, they found that “underlying inflation” (which filters out the more unpredictable price changes) was still sitting at the higher end of the range. Plus, prices for things like new homes and durable goods unexpectedly rose in April, making the RBA question whether inflation is cooling off as quickly as it seemed.

Energy prices could push inflation up again.

The RBA expects inflation to rise again temporarily in late 2025. Why? Because some energy subsidies will end, which could push prices higher. They’re confident inflation will settle back down eventually, but they want to be sure before making any big moves.

The economy is holding up but just barely.

Australia’s economy has shown resilience, but growth is still slow. People are spending a bit more, and there’s been a small boost in home investment. But government spending dropped unexpectedly, and when you look at spending per person, it hasn’t really grown over the past year.

The job market is still strong, with low unemployment, but wage growth has slowed down. That’s another sign the economy isn’t overheating.

Global risks are still hanging around.

Even though global financial markets have calmed down a bit, there are still risks. The U.S. is introducing new tariffs, and tensions in places like Ukraine and the Middle East continue. These could affect global growth and, in turn, Australia’s economy.

Households are still playing it safe.

Even with earlier rate cuts, people aren’t rushing to borrow more. Household credit growth is still slow, and many Aussies are choosing to pay down their mortgages rather than spend more. That tells the RBA that the current interest rate is still doing its job of keeping things in check.

A divided decision.

Interestingly, not everyone at the RBA agreed. Three out of nine board members wanted to cut rates, but the majority voted to hold. Some called it a “power struggle,” but RBA Governor Michele Bullock said it’s healthy to have different views.

Chris’s take on why the RBA’s unpopular decision might make sense.

With another RBA decision just around the corner, FinancePath’s Chris shared his thoughts on why the RBA chose to keep interest rates steady in July even though many hoped for a cut.

“I get it, people are doing it tough, and a rate cut would’ve been a relief,” Chris said. “But the RBA has to think about the bigger picture, not just the short-term pain.”

Chris explained that while inflation looks better, there are still signs it could rise again especially with energy prices expected to go up later this year.

“If the RBA cuts rates too soon, we could see prices jump again. That would just make things harder for everyone in the long run.”

He also pointed out that the global economy is still shaky, and the RBA is being careful not to make any sudden moves.

“It’s not the popular choice, but it’s a cautious one. They’re trying to make sure we don’t go backwards after all the progress we’ve made.”

Chris’s message is simple: while it’s frustrating, the RBA is playing the long game trying to keep things steady so we can all move forward with more confidence.

What’s next?

With another RBA meeting coming up soon, all eyes will be on the latest data. If inflation continues to ease and the economy stays steady, a rate cut could still be on the horizon.

In the meantime, if you’re wondering how this affects your home loan or borrowing plans, reach out to the FinancePath team. We’re here to help you navigate the ups and downs with confidence.