RBA seen cutting rates in Aug after surprise hold; move hinges on Q2 CPI

Published 09/07/2025, 05:34
© Reuters.

Investing.com-- The Reserve Bank of Australia (RBA) surprised markets by holding its cash rate steady at 3.85% on Tuesday, but analysts at Westpac and Morgan Stanley (NYSE:MS) expect a cut as soon as next month, citing cautious policymaking and incoming inflation data.

The decision, split 6-3, reflected the board’s preference to await more information, including June-quarter inflation figures due later this month, before easing further, banks’ economists said.

"The RBA has been a reluctant rate-cutter in recent months, especially earlier in the year. Still, the decision to hold is surprising, and the 6–3 split vote shows how finely balanced the decision was," Westpac said in a note.

Westpac economists noted the RBA’s "cautious and predictable" approach, reinstating their call for an August cut barring upside inflation surprises.

"We read the tone of the media conference as flagging that the rate cut is still on for August, provided the trimmed mean inflation rate for June quarter does not surprise too much on the upside," Westpac economists wrote, projecting subsequent cuts in November, February, and May.

Morgan Stanley analysts, who had anticipated a July cut, reverted to their earlier forecast of reductions in August, November, and February, with a terminal rate of 3.1%.

"The RBA Statement emphasized that economic conditions were evolving ’broadly as expected’," they said, pointing to benign inflation and a resilient labor market.

Both banks highlighted risks if inflation rebounds, but agreed the RBA’s stance leans toward gradual easing. Markets now await the Q2 CPI release on July 26, which could cement the case for an August move.

A Reuters poll on Wednesday also showed that the central bank will cut interest rates by 25 basis points to 3.60%.

The RBA has cut interest rates by 25 basis points twice this year—in February and May—but opted to keep them unchanged in both April and July.

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