RBA July25 decision
RBA July25 decision
Don't be too mad with the RBA. Economics is not an exact science. In fact, in academic and industry circles, it is known as the 'dismal science', where there is consensus that it is not a science at all. The July25 decision to hold the cash rate at 3.85% was against the market's expectations of a 25 bp cut. The ASX 30 Day Interbank Cash Rate Futures had priced in a cut the day before at a 97% probability. Well, the market was wrong. RBA sided with caution, as it typically does during an easing cycle, which we are in. And, our RBA has tended to operate more independently of the market than other central banks.
A day after the cash rate non-event, the market was more sceptical with the probability of a rate cut falling to 95%(!). The market is highly anticipating the easing cycle to continue, and as the RBA chief said, it's not a question about the direction, but the timing.
The short of it is that the RBA and central banks around the world, will often be initially slow to make the move up, and then overly cautious during the easing cycle.
We saw this a few years ago in Australia where the RBA flagged record low interest rates for longer, only to be hit with large scale conflicts of the Russia-Ukraine variety, pushing energy prices up and exposing the hangover of global supply chain issues from the pandemic, leading to a period of higher inflation. Rapid catch-up rate rises followed to quell the inflation beast, 13 of them, which forced loan rates back to the long term average. There rates stayed for another 9 months until easing started in Feb25 as inflation growth started to be contained.
For those of us looking for further cuts, let’s see what the banks and market is saying after the July RBA decision. The Major banks are forecasting two more rate cuts in 2025 and two more in 2026:
| Q3'25 | Q4'25 | Q1'26 | Q2'26 | Total Change | RBA Rate Forecast | |
|---|---|---|---|---|---|---|
| ANZ | -0.25% | -0.25% | -0.50% | 3.35% | ||
| CBA | -0.25% | -0.25% | -0.50% | 3.35% | ||
| NAB | -0.50% | -0.25% | -0.75% | 3.10% | ||
| WBC | -0.25% | -0.25% | -0.25% | -0.25% | -1.00% | 2.85% |
| Market | -0.25% | -0.25% | -0.25% | -0.10% | -0.85% | 3.00% |