23/07/2025
The Reserve Bank of Australia (RBA) has released the minutes of its July monetary policy meeting, offering insights into its decision to keep the cash rate unchanged.
At the heart of the decision was a cautious stance on inflation and growing global uncertainty. While headline inflation had dropped to 2.4%, comfortably within the RBA’s 2% to 3% target range, underlying inflation remained stubbornly high. The board observed that trimmed mean inflation had not eased as much as some indicators had suggested, prompting concerns about the pace of disinflation.
Unexpected increases in the cost of new dwellings and consumer durable goods in April also raised doubts about whether downward inflationary momentum was as solid as anticipated. Looking ahead, the RBA expects headline inflation to climb temporarily toward the top of the target range by late 2025 as energy subsidies are phased out. Still, the board remains optimistic that inflation will eventually settle near the middle of the target band, assuming no major economic shocks occur.
On the domestic front, the Australian economy continues to show resilience, though growth remains moderate. Early 2025 saw stronger than expected household consumption and a pickup in dwelling investment. However, this was offset by an unexpected drop in public sector demand during the March quarter and stagnant per capita consumption over the past year.
The labour market remains tight, with unemployment and underemployment both low. That said, wage growth and inflation in services have started to ease. The board also reflected on weak productivity growth, questioning whether recent modest GDP figures might actually represent the economy operating near its true capacity.
Internationally, financial markets have steadied since the turbulence caused by earlier trade disputes. However, risks remain high. The United States has introduced new tariffs and geopolitical tensions persist in the Middle East and Ukraine. Although worst-case global scenarios now appear less likely than in May, trade policies may still weigh on global growth through the end of 2025 and into 2026.
The RBA considers the current cash rate setting to be mildly restrictive, based on a few key factors. These include estimates of the neutral rate suggesting that the current rate is still above what would support balanced economic growth. In addition, household credit growth remains slow, and many borrowers are continuing to make extra mortgage repayments rather than boosting their spending.
In light of these considerations, the board decided to wait for more data before committing to another rate cut. This approach aims to ensure that any future easing supports sustainable inflation outcomes.
Despite this cautious stance, one-third of the board members supported an immediate rate cut, highlighting a clear split. Three members voted to lower the rate, while six preferred to hold. This division has been described as a power struggle between internal leadership and a subset of external members.
Even so, RBA Governor Michele Bullock acknowledged the differing views as a normal part of the decision-making process, stressing that a range of opinions is both expected and reasonable.
Ultimately, the RBA’s decision reflects a delicate balancing act. While recognising progress in bringing inflation down, the board remains vigilant to both domestic and international risks. With mixed signals across the economy, the RBA has chosen to tread carefully, keeping its options open for future action.
