Australia’s RBA Shocks Markets by Holding Interest Rates in Split Vote-What Does it Mean?

In a split vote, the Reserve Bank of Australia leaves the cash rate unchanged at 3.85% for July, signaling caution amid financial volatility and global uncertainty.

Sydney, July 8, 2025 — In a decision that surprised economists and financial markets alike, the Reserve Bank of Australia (RBA) has voted to keep the benchmark cash rate steady at 3.85%, opting for a wait-and-watch approach as inflationary and currency pressures loom.

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The decision was not unanimous, with the board split six votes to three. However, RBA Governor Michele Bullock refused to reveal her personal vote, stating firmly, “No, I won’t tell you how I voted.”

During a press interaction, Governor Bullock dismissed suggestions that the RBA is merely “keeping its powder dry” in preparation for future shocks. “If we were worried about the exchange rate declining sharply, that would imply interest rate hikes, not cuts,” she said, emphasizing that markets currently remain “remarkably sanguine.”

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📉 Pre-COVID vs Post-COVID Interest Rate Context:

In response to a question about interest rate norms, business reporter Gareth Hutchens recalled that prior to the pandemic, rates were already at historic lows—0.75% by late 2019, having dropped from 1.5% earlier that year due to sluggish inflation and economic slowdown.

After COVID and the Black Summer bushfires, the RBA slashed rates further, leading to an era of ultra-loose monetary policy. Now, in the face of persistent inflation, currency volatility, and tariff risks from major economies like the U.S., the central bank is attempting to normalize rates at a higher baseline.

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📉 Market Reaction & Forward Outlook:

While the market had partially priced in a possible rate cut due to global headwinds and consumer stress, the status quo decision has introduced a note of caution. Analysts believe the RBA is buying time, especially with the next policy meeting just weeks away.

Economists now expect the RBA to wait for more consistent data on inflation, wages, and global trade shocks before making a decisive move. The board’s split also suggests internal debate on how restrictive the current rate really is.

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