Interest Rate Update: RBA Keeps Rates on Hold in Surprise July 2025 Decision

Well, not many experts saw that coming… This week, the Reserve Bank of Australia (RBA) held the official cash rate steady at 3.85 per cent, against the grain of market expectations that a cut was all but guaranteed.

The decision—passed by a whopping 6–3 majority of the board—came as a shock to economists, investors and homeowners with a finger on the pulse. Especially given markets had priced in a 92 per cent chance of a cut.

So, what happened? Why the hold when signs pointed otherwise? And what does it mean for borrowers, penny savers and the broader economy in the months ahead?

Why the RBA Didn’t Budge Rates

It’s all about caution. Australia’s moving into a more optimistic landscape but the decision-makers behind monetary policy don’t want to jump the gun. Governor Michele Bullock explained the board’s decision was based on “a little more information” being needed before any cash rate cut—particularly the upcoming June quarter inflation data, due out 20 July.

Inflation’s come down significantly from its 2022 peak, and the March quarter saw headline inflation within the RBA’s 2–3 per cent target range. But the RBA isn’t convinced just yet. The monthly CPI figures for May showed trimmed mean inflation at 2.4 per cent, but given April’s figure of 2.8 per cent, the RBA sees this as too volatile to make a call.

There are more question marks that have given the RBA pause this month:

• Global economic risks: US tariffs, trade policy and global growth uncertainties continue to put gloom over the economic forecast.
• Domestic demand recovery: While household incomes have finally started to lift, there are big doubts about whether consumption is bouncing back quickly enough.
• Tight labour market: Employment remains strong, but productivity growth is weak, according to the RBA. Unit labour costs are still rising too, the key ingredients to anchor inflation.

Governor Bullock also made it clear that while the board expects rates to fall, the RBA needs confirmation before making another move. You’d say the August meeting holds far more promise for that move.

Why the Market Got It Wrong

Commentators and pundits alike were caught off guard by the hold. The field of experts thought that—with subdued consumer spending subdued, rising mortgage stress and inflation under control—a rate cut was all but certain.

But there’s something to remember here, when so much weight and confidence is put into predictions: markets and economists don’t set interest rates—the board does. And while they might analyse the same data, they don’t always draw the same conclusions. It was a 6–3 vote—that’s six people against three; not six data sets against three.

If hearing the voting outcome is new to you, that’s because it’s new to the RBA. They’re emphasising a shift towards greater transparency, meaning records of votes will now be published. But that transparency doesn’t mean predictability. Anything, really, could happen in August.

What It Means for Mortgage Holders and the Housing Market

As if it wasn’t rough enough out there, homeowners are disappointed to see no movement in their repayment obligations. Many were holding out for relief, especially given two rate cuts earlier this year.

Instead, the average variable mortgage rate remains near 5.80 per cent. The onus is on homeowners, the RBA says, to find relief themselves, renegotiating rates or shopping around for better deals. According to Canstar, there are still over 30 lenders offering variable rates under 5.50 per cent.

Realestate.com.au states that national home prices have risen 3.2 per cent since the start of the year, but the interest rate pause could slow that growth—especially if buyers were hoping for lower borrowing costs to help with affordability.

So, Can We Still Trust Market Forecasts?

This week’s decision is a stark reminder: rate predictions—no matter how much certainty they offer—should be taken with a grain of salt. Expectations can help shape market sentiment, but they’re not guarantees.

So, all eyes now turn to the June quarter inflation data due on 20 July. If the numbers confirm inflation is tracking toward the middle of the RBA’s target band, the door is open for a cut on Tuesday, 12 August.

Until then, it seems the best approach for homeowners is to tend to their own garden. We’ll find out in August if the RBA will plant a seed for better affordability, cheaper cost of debt and perhaps another kick to the already momentum-filled property market.

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