Flourish Health & Wellbeing eMag - Latest Edition - Flipbook - Page 17
Cash Rate Explained
The RBA sets the cash rate, which influences the cost
banks charge each other to borrow overnight. This, in
turn, affects mortgage and lending rates across the
board. When the RBA cuts the rate, borrowers
(typically) pay less, while savers earn less interest.
Conversely, hikes make borrowing more expensive and
saving more rewarding.
What’s Happening Now
Hold at 3.85%: At its July meeting, the RBA kept the
rate steady, surprising markets that had priced in a
92% chance of a 25 basis point cut. The vote was
close4six for hold, three for cut4showing rising
caution.
Inflation in-range4but RBA cautious: Underlying
inflation (the trimmed mean) remains within the 23
3% target4around 2.4%32.6%. But the RBA wants
more certainty: it’s waiting for slower quarterly
inflation data, not just the monthly figures.
Labour market softening: Unemployment rose
unexpectedly to 4.3% in June4the highest since late
20214on the back of weak full-time job creation.
Weak consumer spending and a cooling labour
market are piling pressure on the RBA to ease4but
not yet.
So even though inflation is easing, the RBA isn’t
convinced the recovery is secure or broad-based
enough to resume cutting rates.
Why the Rate Cut Has Stalled
1.Uncertain inflation path: The RBA doesn’t want to rely on volatile monthly CPI. It
prefers robust quarterly data to confirm trends.
2.Global and local caution: Geopolitical tensions, global economic slowdowns, and
Australian consumer sluggishness make the RBA uneasy about cutting too soon.
3.Previous tightening nuance: Because Australia was slower to hike and did so less
aggressively than other countries, the RBA is equally cautious about unwinding 3 in
effect, it’s being deliberately conservative.
4.Internal board division: A rare vote split (633) reveals differing views on timing4
illustrating that even among experts, opinion is not uniform.
