In a surprise move that caught markets off guard, the Reserve Bank of Australia (RBA) left the official cash rate unchanged at 3.85 per cent in its July 2025 meeting, defying widespread expectations of a 25 basis point cut. Its interest rate cuts of 25 points made headlines across the Australian media landscape on 20 May, providing some breathing space for Australians. This latest news signals a cautious balancing act with the country’s economy.
RBA Governor Michele Bullock said the decision was “about timing rather than direction,” explaining that while inflation is easing, the Board wants greater confidence that price growth will remain sustainably within the 2–3% target range before moving ahead with more cuts. Core inflation, while falling, is still being closely monitored, especially in light of global uncertainties and weaker domestic demand.
The decision was not unanimous — a rare revelation from the central bank — with six board members voting to hold and three pushing for a rate reduction. Treasurer Jim Chalmers welcomed the transparency but acknowledged the public’s disappointment, especially among mortgage holders hoping for relief.
Financial markets responded quickly, with the Australian dollar initially rising. Economists, many of whom had priced in a July cut, expressed frustration, pointing to continued mortgage stress and sluggish consumer spending. Some opposition figures blamed the government’s fiscal policies for contributing to persistent inflation, while others viewed the RBA’s caution as prudent given a complex global backdrop.
Despite holding fire this month, the RBA hasn’t ruled out future cuts. Bullock hinted that easing could resume as early as August, provided inflation continues to trend downward.
The lead-up: May’s headline-making rate cut?
The cautious tone in July stands in contrast to May 2025, when the RBA cut interest rates by 25 basis points to 3.85% — the first reduction in over a year and its lowest level in two years.
This 25 basis point reduction followed a previous cut in February and a rate hold in April, which signalled a shift to supporting economic stability amid easing inflation and global uncertainties (aka Trump Tariffs and disruption to global economies due to the conflicts in Gaza and Ukraine).
The cut came as inflation eased and global economic uncertainty grew. With inflation now sitting comfortably within the RBA’s 2–3% target range, this rate drop was designed to gently support the economy without sparking another cost-of-living blowout.
More than 100 lenders responded by lowering variable home loan rates, offering some much-needed relief to borrowers.
Markets had largely anticipated the May cut, with a Reuters poll showing near-unanimous expectation of the move. Still, the rate cut signalled a shift in the RBA’s stance — from a period of extended monetary tightening to one of cautious easing — as it tried to balance economic growth with inflation control.
Why were the rates cut in May 2025?
There are multiple reasons. First and foremost, to get inflation under control. It dropped to 2.4 per cent, down from the frightening 7.8 per cent peak in late 2022.
However, the global outlook is shaky. As aforementioned, tensions overseas and new U.S. tariffs have made central banks cautious.
Finally, our economy needs support: While employment remains solid, the RBA is giving things a nudge in the right direction.
“[The] decision will be met with a sigh of relief from households and businesses who have been counting on another rate cut to boost their cashflow,” said the accounting body CPA Australia’s Business Investment Lead, Gavan Ord.
“After multiple rate rises, persistent inflation and cost-of-living pressures, consumer and business confidence remain subdued. This cut should lift sentiment slightly and put a bit more money back into people’s pockets.
However, the July meeting showed the RBA’s more cautious stance, opting to hold rates steady as they wait for greater evidence that inflation is sustainably under control.
What do the current RBA rates mean for you?
For mortgage holders:
The May cut gave borrowers a modest break, and it remains in place. According to Canstar, the average borrower with 25 years remaining could be saving:
- $76 per month on a $500,000 loan
- $91 on a $600,000 loan
- $114 on a $750,000 loan
- $152 on a $1 million loan
“While one cut is unlikely to be a silver bullet for many households, it’s a small weight off the shoulders of millions of borrowers across the country,” said Canstar’s Sally Tindall.
Canstar outlined that the average home buyer with 25 years remaining on their loan could receive a $76 drop in repayment for a $500,000 loan, $91 for a $6000,000 mortgage, $114 for a mortgage of $750,000, and $152 for a $1m loan. You can read their number crunching here.
All four major banks (NAB, ANZ, Commonwealth Bank, and Westpac) passed on the full cut by early June. However, the RBA’s decision to pause in July means no additional relief, at least for now. A further cut could come as early as August if inflation continues to cool.
Furthermore, the Commonwealth Bank warned that the “unexpected” cash rate hold could hinder the economy:
“The delay in the interest rate cutting cycle could slow down the anticipated consumer spending recovery that we envisage for the remainder of 2025 and into 2026,” said CBA’s senior economist, Belinda Allen.
“We are expecting the Reserve Bank of Australia to next cut interest rates in August and follow up with another rate cut in November. The risk still remains, they’ll have to cut interest rates a third time in early 2026 to ensure Australia’s economic recovery.”
If you’re renting:
There’s still no direct benefit for renters. Unless landlords pass on any mortgage savings — which is rare — rent relief remains unlikely in the short term.
That said, continued rate cuts could gradually ease pressure in the housing market, potentially slowing future rent increases.
If you’re a saver or retiree:
Lower interest rates are a double-edged sword. For those relying on interest income, the May cut was unwelcome. And with rates still relatively low, bank savings accounts and term deposits are offering minimal returns.
Retirees may find their savings earning even less, which could strain household budgets. This might impact those living on retirement savings.
If you’re shopping or borrowing:
Interest rates on credit cards and personal loans can shift in line with the cash rate, though changes often lag. The May cut may have slightly lowered borrowing costs, but July’s pause means no additional savings — yet.
Still, the RBA’s easing bias could lead to more favourable lending conditions later in 2025, supporting household spending and economic activity.
What’s next?
As of July, the RBA remains in wait-and-see mode, holding its policy steady as it gauges the path ahead. But with signs of inflation cooling and pressure mounting from borrowers and business groups alike, economists say rate cuts are still on the horizon, just not yet.
August’s board meeting is now shaping up to be a pivotal one, with many watching closely for the central bank’s next move in what has become a slow, delicate pivot toward monetary easing.
