The RBA is giving Aussies the cold shoulder this winter with some unexpected news of a rate pause. Today the RBA has officially announced they are holding the cash rate at 3.85%.

All economic signs were leading to a cut this month so experts are surprised to say the least. In fact, 97% of financial markets predicted a rate cut from the RBA this month. 

Only one of the big four banks, ANZ, saw a rate pause coming in July, while the other three - CBA, NAB and Westpac - were expecting another cut. 

So what’s the reason? Well, global shake ups like US tariffs and rising conflicts in the Middle East could still have an unknown ripple effect on Australia’s economy, so the RBA is laying low and playing a bit of a cautious hand.

Why were economists expecting a rate cut?

The short answer is - falling inflation. In May, the RBA’s favourite measure of inflation called the “trimmed mean inflation” dropped to 2.4% (the lowest since Nov 2021). This was lower than expected and well within the RBA’s target range of 2-3%. 

In more relatable terms, lower inflation means most goods and services in Australia (from a bag of mandarins to the cost of building a home) are becoming more affordable. Dare we say, the worst of the cost-of-living crisis might be behind us? 

However, business confidence is still low because consumers have been slow to open up their wallets even after two cuts earlier this year. So experts were hoping another cut in July could give mortgage owners the boost they need to open up their wallets. 

What happens when the cash rate is paused?

We continue with the status quo. 

If you’ve got a variable-rate home loan, your interest rate and mortgage repayments remain the same.

And good news for savers, your interest earning accounts just avoided a hit, so you’ll keep earning at your current interest rate. 

Where to from here?

If inflation keeps heading south and the labour market holds up, we could see a rate cut before spring. But don’t bank on a full-on rate-slashing spree – as seen this month, the RBA’s still moving cautiously.

For now, we’re back to waiting. 

Remind me, why are the rates so high?

As recently as May 2022, interest rates were at a historic low of 0.1% and economic conditions in Australia were pretty stable.

But with economic slowdown coming out of the pandemic, and geo-political tensions globally, inflation skyrocketed. The RBA went hardcore with thirteen cash rate increases in twenty two months. And now, the RBA is slowly but surely unwinding these rate hikes.