RBA meeting minutes reveal plan for 'cautious and gradual' rate cuts clashed with unemployment 'surge'

Australia Broadcast Center

22-07-2025

They say hindsight is 20-20, but three members of the Reserve Bank board are likely to turn up at the next meeting with the strong temptation to say, "we told you so".
The RBA has released the minutes from its meeting two weeks ago, when interest rates were left on hold, catching the market and most private-sector economists off guard.
That decision to keep rates steady was made by a six to three majority, with the minority arguing there was no need to wait.
"The case to lower the cash rate target at this meeting rested on a view that there was already sufficient evidence to be confident that inflation was on track to be sustainably back at the midpoint of the target range, if not lower," the minutes revealed.
The minority in favour of a cut argued that US tariff policy would be a drag on future global economic growth, that Australia's economic expansion remained "subdued", households were saving more, wages growth and services inflation were weakening, and that "recent data suggested a loss of momentum in activity".
"Moreover, there was uncertainty around whether market sector employment growth would increase by enough to offset an expected slowing in non-market sector employment growth to maintain momentum in overall employment growth," the minutes showed.
That last concern appears to have since been vindicated by another weak set of jobs numbers, released last week, showing unemployment had jumped from 4.1 per cent in May to 4.3 per cent in June, seasonally adjusted, although some analysts have attributed the scale of that increase to statistical variation.
At her post-meeting press conference, RBA governor Michele Bullock said the disagreement among the board was not one of where rates should head, but merely the timing of further rate cuts.
This is reflected in the formal minutes from the meeting.
"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 minutes noted.
The majority who decided to keep interest rates on hold based their decision on a few key elements.
Unlike the minority, most board members interpreted recent economic data as surprisingly upbeat, including the very monthly inflation figures that had prompted some market economists to bring forward their rate cut forecasts from August to July.
"Monthly indicators of inflation had been marginally higher than were consistent with the staff's forecast for underlying inflation in the June quarter, growth in private demand in the March quarter had been a little stronger than expected and conditions in the labour market had so far not eased as anticipated," the majority argued.
They also said that global economic outcomes had so far been more benign than feared at the previous May meeting, when rates had been cut, reducing the urgency for another rate cut.
"Members noted that the baseline forecasts already incorporated some deterioration in global economic conditions because of higher tariffs and policy uncertainty, which was consistent with the evidence currently available on how the trade tensions and other factors might be resolved," the minutes revealed.
"Moreover, the forecasts had been conditioned on a relatively modest and gradual path of further easing of monetary policy over the period ahead."
After two rate cuts, the majority of the board was also concerned that it would be difficult for the RBA to know exactly when monetary policy had changed from being restrictive — that is, holding back economic growth — to neutral or boosting activity.
Given the degree of uncertainty around what the current "neutral" level of the cash rate is, the majority argued that "lowering the cash rate a third time within the space of four meetings would be unlikely to be consistent with the strategy of easing monetary policy in a cautious and gradual manner".
Despite the expressed caution of the majority on the RBA board, Abhijit Surya from Capital Economics expects rates to fall at next month's meeting on August 11-12, with further cuts to follow.
"With the unemployment rate having surged in June and timely indicators suggesting that activity and inflation both remain subdued, the bank will almost certainly resume its easing cycle in August," he noted.
"Looking further ahead, we expect the board to cut rates to 2.85 per cent by mid-2026, in line with the bank's stated goal of ensuring that monetary policy is no longer restrictive.
"Our terminal rate forecast is below the 3.1 per cent currently predicted by the analyst consensus."
Either way, that implies between three and four more rate cuts from the current cash rate of 3.85 per cent, unless the market has again misread the degree of caution among the majority of RBA board members.