Well, there’s a surprise. There were better odds on Peter Dutton becoming Prime Minister
Well, there’s a surprise. There were better odds on Peter Dutton becoming Prime Minister on the morning of the Federal Election this year than there were on the RBA leaving rates unchanged this week, but banks and predictors (and I!) got it wrong for the most part, with a headline rate of 3.85% here to stay for at least another month.
So certain were most, that a certain green bannered property site even posted an article touting another quarter percent reduction just prior to the official news being released in the negative. Not the first time a journalist has prepped in advance and a quick retraction and replacement came through, but a clear sign of expectations.
Why didn’t the Reserve Bank do as expected and drop rates for a third time in 2025? Well, if I knew the whole answer, hopefully I would be up for (RBA Governor) Michelle Bullock’s pay packet, but mostly it comes down to the fact that the RBA has limited tools in their arsenal and for now they are looking to keep them in reserve. The Australian economy is not in its best shape, but on a global scale we are performing pretty well by comparison, and the big shocks (or potential shocks) are predominantly geopolitical. “Liberation Day” tariffs imposed by the US are on hold now til August, and with the US Federal Reserve Bank (the American equivalent to the RBA) also remaining cautious in their interest rate policy, the RBA probably felt they had more leeway to hold off for now. It probably helps that the Australian government is a lot more hands off than their vocal American counterparts too…
Its important to note that this move is unlikely to herald a reversal of policy, but rather a more “wait and see” attitude, and additional rate relief should still be forthcoming over the next few months. There is still a high level of economic uncertainty, some pretty dramatic changes in policy with our major trading partners, and the cost of living continues to bite. House price are still rising off the back of tight supply virtually across the board, so any impact on affordability is likely to be minimal even when rates do come down.
Worth keeping in mind though, historically when interest rates are low and earnings on cash drop, investors start looking for other options to make money – fuelling both property and the share market even more.