Two weeks ago, on 8 July, most S&P/ASX 200 Index (ASX: XJO) investors were caught off guard after the Reserve Bank of Australia unexpectedly opted to keep Australia's official interest rate on hold at 3.85%.
Economists, ASX 200 investors, and market analysts alike had widely been expecting a rate cut from the RBA as inflation Down Under returns to the central bank's 2% to 3% target range.
Six members of the RBA board voted in favour of keeping the benchmark interest rate tight, while three opposed it.
Here's what we just learned from the minutes of the RBA's 7 and 8 July board meeting.
Why the RBA held the benchmark interest rate steady
The minutes reveal that the board noted that financial market pricing continued to imply a relatively benign outlook for global growth and inflation.
"The improvement in market conditions in preceding weeks appeared to reflect an expectation that the most extreme outcomes for US tariffs were likely to be avoided," the board said.
However, the members noted:
The final scope of tariffs and policy responses in other countries remained unknown; there were persistent geopolitical tensions, including conflict in the Middle East and Ukraine; and increasing concerns about long-run fiscal sustainability in a number of major advanced economies.
This led the RBA to speculate whether financial market pricing reflected "a degree of complacency" about the impact of these factors on the outlook for the global economy.
The board also discussed the fact that a 0.25% interest rate cut was almost fully priced in by the market and by most market economists.
The RBA is also keeping a close eye on developments in the United States. Particularly the potential for President Donald Trump's tariffs to rekindle global inflation down the road.
According to the RBA minutes:
The central case remained for US inflation to increase and output growth to slow in the second half of 2025 as inventories are run down and firms' capacity to absorb higher tariffs diminishes.
Strong Australian jobs figures, with no productivity growth, also swayed some members towards keeping the interest rate on hold.
The minutes stated:
The unemployment rate was unchanged in May and had been stable over the preceding year, and other indicators pointed to little change in the unemployment rate in the near term (compared with the staff's previous expectations for a slight increase).
Tellingly, the minutes also reveal that members noted that "the sharp declines in the monthly indicators for headline and trimmed-mean inflation were likely to have overstated the easing in underlying inflation momentum".
Looking ahead, the RBA concluded that headline inflation was expected to pick up temporarily towards the top of its target range in late 2025 and remain there in 2026, as the currently legislated government energy subsidies to households unwind.
When can ASX 200 investors expect some rate relief?
So, when might ASX 200 investors and mortgage holders see the RBA cut interest rates?
Well, the central bank makes its next policy decision announcement on 12 August.
Commenting on the outlook for a potential rate cut, Josh Gilbert, market analyst at eToro, said:
Last week's uptick in unemployment has stoked hopes of an August rate cut. It will be very surprising if we see consecutive pauses from the RBA, even with global economic volatility persisting.
The market now sees the RBA cutting three times in the second half of the year. That's an optimistic view, but it could come to fruition if key data like last week's jobs numbers continues landing within target bands.
The RBA's own minutes also support the expectation of pending interest rate relief.
According to the release:
All members agreed that, based on the information currently available, the outlook was for underlying inflation to decline further in year-ended terms, warranting some additional reduction in interest rates over time.
The focus at this meeting was on the appropriate timing and extent of further easing, against the backdrop of heightened uncertainty.
