Private Credit Weekly Insights, 25 July 2025

The RBA's Monetary Policy Board decided by a 6–3 vote to hold the cash rate at 3.85%, noting that cutting in July would have been inconsistent with its broader strategy. While inflation has entered the 2–3% target range—recently reported at ~2.4%—the Board remains wary and emphasises a “wait-and-see” stance until quarterly data confirms a durable slowdown.

Labour market dynamics:
Although unemployment ticked up to 4.3% in June (from ~4.1%), the RBA judges that the labour market remains tight. The Governor emphasised that gradual easing, achieved through softer job vacancies and reduced voluntary turnover—not sharp job losses—is the preferred path. Rising unit labour costs and robust private demand also gave pause to Board members, favouring immediate cuts.

Diverging viewpoints inside the Board:
Three members dissented, arguing that the inflation outlook justified immediate easing and that delays risk dampening growth momentum. The majority countered that premature cuts could overshoot into a period of disinflation below target.

Forward guidance (despite reluctance):
While unwilling to provide explicit forward guidance, the Board acknowledged that further rate cuts are “warranted over time,” focusing on the timing and extent of easing. Markets now see a strong probability of an August cut, with some forecasts anticipating rates near 3.10% by early 2026.

What it means:
The RBA played it safe in July, opting for patience over potential missteps. They’re waiting for more concrete readings—especially quarterly CPI and ongoing labour data—to guide their next move. Still, the Board’s signalling is explicit: softer jobs data and inflation trends will unlock easing.

With unemployment trending up and fresh labour market data due next week, the stage is set for a 25 bp rate cut at the August meeting. That move is highly likely to proceed and should inject positive momentum into the Australian economy as we enter the second half of 2025. For businesses, credit conditions should ease, and consumer confidence is likely to receive a lift, giving private demand the needed boost, even while inflation remains anchored near its target.

The RBA isn’t cutting prematurely—but neither are they closing the door. A timely August rate cut, supported by softening employment metrics, is on the cards, and it could help recalibrate growth dynamics heading into H2 2025.

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