‘Case not established': Shock blow as RBA keeps rates on hold in July meeting
A cautious RBA has held the official cash rate at 3.85 per cent following its July meeting, with the shock move defying expert commentators and the money markets predictions.
Prior to Tuesday's announcement, the money market had placed a 92 per cent chance on a rate cut off the back of weaker than expected economic data.
Mortgage holders will now have to wait until August at the earliest to get further interest rate relief.
The Reserve Bank board said while inflation is falling the board wanted to wait for a 'little more information' before moving on rates.
'Uncertainty in the world economy remains elevated,' the board wrote in its statement.
'While the final scope of US tariffs and policy responses in other countries remains unknown, financial market prices have rebounded with an expectation that the most extreme outcomes are likely to be avoided.'
The board also said domestic factors played a role in their decision, including a gradual recovery in household incomes and an easing in some measures of financial stress.
'There are uncertainties about the outlook for domestic economic activity and inflation stemming from both domestic and international developments,' the board said.
Tuesday's announcement follows a rate cut in May, with the central bank opting against back-to-back movements in the official cash rate.
Australia's Cash Rate 2022
VanEck head of investments and capital markets Russel Chesler said markets were getting ahead of themselves and changes to monetary policy takes time to unwind.
'Markets seem to be throwing caution to the wind with their expectation of two more cuts this year, implying further falls in inflation and a softer job market,' he said
'The unemployment rate has remained steady at 4.1 per cent, which is close to historical lows, and there are no signs of this changing.'
Ahead of the announcement, Betashare chief economist David Bassanese said the 'case for a rate cut had not been established.'
'Although May trimmed mean annual inflation dropped to 2.4 per cent, this followed a solid 2.8 per cent gain in April – and there's every risk it could bounce back again in the more comprehensive and reliable June quarter CPI report later this month,' he said.
'Prudence suggests the RBA should and would await confirmation of lower inflation in the quarterly CPI report before cutting again in August – despite the market pricing a rate cut next week with near certainty.'
But he conceded last Wednesday's retail data gave the RBA a yellow light when it comes to making a rate call.
'Accordingly, although retail sales rose a weaker than expected 0.2 per cent in May, it does not necessarily give the green light to the RBA to cut interest rates next week,' he said.
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