RBA holds cash rate in defiance of widespread expectations

The Reserve Bank of Australia (RBA) has defied expectations, keeping the cash rate where it is on Tuesday afternoon.

Perhaps the biggest signal is that this comes as Trump’s trade tariffs remain the subject of considerable uncertainty.

A recent call from a TCorp analyst suggested the main driver of Australian inflation is no longer the RBA interest rate, but instead, global trade impacts – something I wrote about last week.

(After Lowe’s infamous fumble only a few years ago, in my view, it was always likely Bullock would be approaching the July decision very carefully.)

The pause is contrary to weeks of bullish bets across bond and prediction markets, given Australia’s headline and core inflation reads sit within the RBA’s well-known 2-3% target band.

The move also follows the Fed and Bank of England pausing in mid-late June.

The move came on a Tuesday trading session where, for all intents and purposes, the market apparently wasn’t too sure what it was doing.

Market reaction

The ASX200 immediately dropped on the news, showing that every now and then, the wisdom of crowds isn’t quite that right.

(Firebrand US quant Cliff Asness released a note in relatively recent history stating the market is getting worse at pricing things in; perhaps we are seeing that today.)

With Trump’s chaotic tariff policies coming back to the fore in Week 28, and with the memories of Philip Lowe’s mortgage call bungle in early COVID.

Whether or not the RBA now cuts in August, as a small handful of economists and analysts were calling, will depend, more likely than not, on future moves from the US.

But with the tariff un-pause now pushed into August 1, we could be waiting even longer than that.

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Correction: An early version of this article incorrectly mentioned Powell when it meant to reference former RBA Chief Phil Lowe