The Reserve Bank of Australia (RBA) surprised markets today by holding the official cash rate steady at 3.85 per cent, citing ongoing uncertainty in the economic outlook.

In its statement, the RBA said, "The board continues to judge that the risks to inflation have become more balanced and the labour market remains strong. Nevertheless, it remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and supply. 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."

Economists had overwhelmingly (87 per cent) anticipated a rate cut.

Among the major banks, NAB had consistently forecast a July cut, revising its outlook in early April - shortly after former U.S. President Donald Trump’s “Liberation Day” tariff announcement rattled markets. ANZ also brought its rate call forward from August to July just days before the meeting, citing stalled consumer confidence and persistent uncertainty surrounding U.S. trade policy.

Adam Boyton, ANZ’s head of Australian economics, described a July cut as “the path of least regret,” suggesting the RBA might act preemptively rather than wait for the August Statement on Monetary Policy.

Despite market expectations, Australia’s labour market has remained resilient, with unemployment steady at 4.1 per cent—stronger than the RBA’s assumptions in its May SMP.

Additionally, the Australian Bureau of Statistics (ABS) reported a 2.1 per cent rise in the monthly Consumer Price Index (CPI) for May, below market forecasts of 2.3 per cent and marking the lowest print since October 2024.

On this backdrop, the Commonwealth Bank of Australia (CBA) also shifted its forecast in favour of a July cut. Yet CBA senior economist Belinda Allen noted the decision was finely balanced, pointing to reduced trade uncertainty, continued labour market tightness, and the RBA’s desire to wait for quarterly CPI data.

Similarly, HSBC chief economist Paul Bloxham observed that while softer GDP figures in early June supported the case for easing, they might not have been enough on their own. However, the lower-than-expected CPI print tipped the scales in favour of a cut in his view.

Rick Maggi CFP, Financial Advisor (Perth), Westmount Financial