Ella 
In its June 2025 meeting, the Reserve Bank of Australia (RBA) decided to keep the official cash rate unchanged at 3.85%, marking the third consecutive month of holding rates steady. The decision comes amid mixed economic signals, with inflation showing signs of moderation but remaining above the RBA’s target band of 2-3%. Governor Michele Bullock emphasized that while progress has been made in taming price pressures, the board remains cautious about premature easing, given persistent risks in the global and domestic economy.
The Australian economy has been navigating a delicate balance between slowing growth and stubborn inflation. Recent data from the Australian Bureau of Statistics (ABS) showed that the Consumer Price Index (CPI) rose by 3.4% year-on-year in May 2025, down from 3.8% in April. This decline was driven by lower energy prices and a moderation in food inflation, but services inflation—particularly in healthcare, education, and insurance—remained elevated. The RBA noted that wage growth, while stabilizing, continues to outpace productivity gains, posing a challenge for long-term inflation control.
Housing market dynamics also played a role in the RBA’s decision. Despite higher borrowing costs, property prices in major cities like Sydney and Melbourne have shown resilience, supported by tight supply and strong migration-driven demand. However, mortgage stress has increased, with delinquency rates creeping up among households with variable-rate loans. The RBA acknowledged that further rate hikes could exacerbate financial strain, but it also warned that premature cuts might rekindle speculative activity in the housing market.
Internationally, the RBA is closely monitoring the Federal Reserve’s and European Central Bank’s (ECB) policy trajectories. The Fed has signaled a slower pace of rate cuts than initially anticipated due to persistent U.S. inflation, while the ECB recently reduced its benchmark rate, reflecting diverging economic conditions across major economies. These global developments complicate the RBA’s policy path, as premature divergence from other central banks could lead to undesirable currency fluctuations.
Looking ahead, the RBA maintained a data-dependent stance, ruling out any pre-committed path for rate adjustments. Financial markets are currently pricing in a potential rate cut by late 2025, but Governor Bullock stressed that the board will require more evidence of sustained inflation moderation before considering easing. Economists remain divided on the timing of future moves, with some advocating for patience and others warning that delaying cuts for too long could stifle economic recovery.
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