Brutal blow for millions of Aussies with a mortgage as Reserve Bank makes shock interest rate decision that NOBODY saw coming
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Aussie home borrowers are being brutally deprived of another much-needed rate cut despite inflation being on the low side – surprising financial markets.
The Reserve Bank of Australia has left the cash rate on hold at 3.85 per cent, confounding financial markets that had regarded a Tuesday afternoon rate cut as a 97 per cent chance as recently as last night.
For weeks, economists had been confidently predicting a July 8 rate cut, with the interbank lending futures markets last week even suggesting it was a 100 per cent chance, with inflation now on the low side of the RBA band.
Australia’s weak economy had also convinced the experts at the Big Four banks that the RBA would move as soon as possible, rather than waiting until the release of more comprehensive quarterly inflation data.
For the first time ever, the RBA revealed the vote of its new monetary policy board with six in favour and three against, which means Governor Michele Bullock could potentially be outnumbered and lacking authority as central bank chief.
The Reserve Bank suggested Donald Trump’s tariffs were delaying a rate cut, with the 90-day pause expiring on Wednesday night, Australian time.
‘There are uncertainties about the outlook for domestic economic activity and inflation stemming from both domestic and international developments,’ the RBA board said.
Treasurer Jim Chalmers, who introduced a new specialist monetary policy board to decide the cash rate, expressed his disappointment.
‘I acknowledge, there will be millions of Australians around the country who were desperately hoping for more rate relief today in addition to the two rate cuts that we’ve already seen over the last five months,’ he told reporters in Canberra on Tuesday.
Aussie home borrowers are being deprived another rate cut despite inflation being on the low side – surprising financial markets
‘This decision will comes as a surprise to the market and to almost every economist who’s expressed a view in recent days.’
Economists with Australia’s Big Four banks were all forecasting relief and thought the RBA would move on Tuesday instead of waiting until August, following the release of June quarter inflation data.
But the RBA on Tuesday suggested it could still wait.
‘With the cash rate 50 basis points lower than five months ago and wider economic conditions evolving broadly as expected, the board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis,’ it said.
Pricing for a rate cut had surged in late June after new Australian Bureau of Statistics data showed monthly headline inflation growing by just 2.1 per cent in May, putting on the low side of the RBA’s two to three per cent target.
Australia’s economy also grew by just 1.3 per cent in the year to March, a level well below the long-term average of three per cent.
The Reserve Bank of Australia left the cash rate on hold at 3.85 per cent, confounding financial markets that had regarded a Tuesday afternoon rate cut as a 97 per cent chance as recently as last night (pictured are Sydney pedestrians)
