July 2025 RBA Monetary Policy Decision
8 July 2025
RBA Monetary Policy Decision: July 2025
A Comprehensive Review for Australian Businesses and Individuals
Official Cash Rate Remains Unchanged
The Reserve Bank of Australia (RBA) has concluded its July meeting, deciding to maintain the cash rate target at its current level of 3.85 per cent. The decision reflects a cautious approach as the Board continues to monitor economic indicators.
As noted by economists at NAB, a steady cash rate provides a period of stability for borrowers, but "the pressure on household budgets remains significant, and any future rate movements will be heavily scrutinised" (NAB Economics).
The State of Inflation
Inflationary pressures have shown a continued and substantial moderation since their peak in 2022. The RBA attributes this to the impact of higher interest rates, which have worked to better align aggregate demand with supply in the economy.
During the March 2025 quarter, the headline inflation figure, which was partially influenced by temporary government cost-of-living relief measures, settled at the midpoint of the target range. The trimmed mean inflation, a core measure, was recorded at 2.9 per cent.
The central forecast outlined in May anticipated that underlying inflation would continue its downward trend, moving towards the midpoint of the 2–3 per cent target range, with an assumption of a gradual easing path for the cash rate.
While the latest monthly CPI data for the June quarter are generally consistent with these forecasts, they were marginally stronger than anticipated. Given that the cash rate has been reduced by 50 basis points over the past five months and the broader economy is evolving as expected, the Board has determined it can wait for further data to confirm that inflation is sustainably on track to reach the 2.5 per cent target.
Navigating an Uncertain Outlook
Uncertainty continues to be a defining feature of the global economic landscape. While financial markets have rebounded with the expectation that extreme outcomes regarding US tariffs and subsequent international policy responses will be avoided, the situation remains fluid. The RBA notes that trade policy developments are still projected to negatively affect global economic activity. A persistent risk is that both households and businesses may delay spending until the outlook becomes clearer.
On the domestic front, the picture is one of gradual recovery.
Private Demand: Appears to be slowly strengthening.
Household Finances: Real household incomes have seen an increase, and some metrics of financial stress have eased.
Business Conditions: Despite these positive signs, businesses in certain sectors report that weak consumer demand is making it challenging to pass on increased costs to their final prices.
There are also significant uncertainties surrounding the trajectory of domestic economic activity and inflation. The national accounts for the March quarter confirmed that domestic demand has been strengthening over the last six months. The May forecasts projected a continued rise in household consumption driven by higher real incomes. However, there is a risk this pick-up could be slower than expected, potentially leading to subdued aggregate demand and a more pronounced deterioration in the labour market. Conversely, leading indicators suggest the labour market could prove to be stronger than anticipated.
Further uncertainties relate to the delayed effects of recent monetary policy easing and how business pricing strategies and wage negotiations will react to the current economic balance, tight labour market conditions, and persistently weak productivity growth.
Labour Market Conditions
Various indicators suggest that the Australian labour market remains tight. Measures of labour underutilisation are at relatively low levels. Feedback from business surveys and direct liaison indicates that labour availability continues to be a significant constraint for a wide range of employers.
Although wage growth has softened from its peak when viewed through the lens of quarterly volatility, productivity growth has failed to improve. Consequently, growth in unit labour costs—the cost of labour to produce one unit of output—remains high, posing an ongoing challenge for businesses and an upside risk for inflation.
The Board's Strategic Priorities
The primary mandate of the RBA Board is to maintain price stability and foster full employment. The current judgment is that the risks surrounding inflation have become more balanced and the labour market continues to demonstrate strength.
Despite this, the Board remains cautious about the outlook, especially given the heightened level of uncertainty impacting both aggregate demand and supply. The decision to hold the cash rate was based on the judgment that the Board could afford to wait for more conclusive information confirming inflation's sustainable return to the 2.5 per cent target.
The Board highlighted that monetary policy is well-positioned to respond decisively if international developments were to materially affect Australia's economic activity and inflation. Future decisions will be guided by a close watch on incoming data and an evolving assessment of risks, with a particular focus on:
Developments in the global economy and financial markets.
Trends in domestic demand.
The outlook for inflation and the labour market.
A New Level of Transparency: The Vote Revealed
In a move towards greater transparency, the Board has decided to publish an unattributed record of votes in its post-meeting statements. The decision to hold the cash rate at 3.85 per cent was reached by a majority of 6 votes in favour and 3 against. This new practice offers deeper insight into the Board's deliberations and the diversity of views among its members.