Breaking: RBA defies expectations of interest rate cut in split decision | Breaking News & Latest Australia Updates

Breaking: RBA defies expectations of interest rate cut in split decision — Topic:Interest Rates The RBA's cash rate had been tipped to fall to 3.6 per cent but remains at 3.85 per cent in July.(AAP: Brendan Esposito) The Rese...

Topic:Interest Rates

The RBA's cash rate had been tipped to fall to 3.6 per cent but remains at 3.85 per cent in July.(AAP: Brendan Esposito)

The Reserve Bank has not delivered an interest rate cut in July as had been widely forecast, instead keeping the cash rate on hold at 3.85 per cent.

The decision defied financial market expectations, which had priced in a 96 per cent chance of a 0.25 percentage point cut, and economist forecasts.

Forecasts had shifted almost unanimously in favour of a cut, after the latest inflation data showed consumer prices rising less than expected in May, while economic growth slowed in the first quarter of the year.

However, in its statement, the RBA's monetary policy board said it had judged it could wait for "a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis".

The central bank had previously cut interest rates at its February and May board meetings.

Before that, the RBA's cash rate had sat at 4.35 per cent since November 2023, after a series of 13 rate hikes, beginning in May 2022.

It was not a unanimous decision by the board members, with six voting in favour of keeping rates on hold, and three against.

While the votes were not attributed to particular members, it was the first time the exact split has been published.

Uncertainty loomed large in the post-meeting statement.

"While the final scope of US tariffs and policy responses in other countries remains unknown, financial market prices have rebounded with an expectation that the most extreme outcomes are likely to be avoided," it read.

"Trade policy developments are nevertheless still expected to have an adverse effect on global economic activity, and there remains a risk that households and firms delay expenditure pending greater clarity on the outlook."

It also noted uncertainties around the domestic outlook, stemming from developments in Australia and abroad.

"There are also uncertainties regarding the lags in the effect of recent monetary policy easing and how firms' pricing decisions and wages will respond to the balance between demand and supply for goods and services, tight conditions in the labour market and continued weak productivity outcomes," the statement read.

In the wake of the shock decision, financial markets were volatile, with pricing for the next interest rate move swinging between on hold and a rate hike.

By 3pm AEST, pricing based on interest rate derivatives had settled around an 85 pent chance of a 0.25 percentage point cut in August, according to LSEG.

The Australian dollar spiked on the news, jumping from 65.1 US cents before the decision to as high as 65.5 US cents in the aftermath.

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