RBA keeps rates on hold at 3.85pc in shock decision

Pinned post – 2.30PM

RBA leaves cash rate at 3.85pc in shock decision

The number: The Reserve Bank of Australia has stunned the market and economists by holding fire on a much-anticipated cut and leaving the official cash rate on hold at 3.85 per cent.

The RBA board voted six to three to keep the rate on hold.

What was said: “While recent monthly CPI indicator data suggest that June quarter inflation is likely to be broadly in line with the forecast, they were, at the margin, slightly stronger than expected. With the cash rate 50 basis points lower than five months ago and wider economic conditions evolving broadly as expected, the board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis.”

Why it matters: The RBA was widely expected by the bond market and economists to cut the cash rate to 2.6 per cent because of easing inflation. It reduced the cash rate in February and May. At the last board meeting, the central bank had even considered a jumbo half of one percentage point move.

What has changed: Domestic inflation finally returned to the RBA’s 2 to 3 per cent target band in the first quarter. But the job market, a key driver of inflation, remains tight. The US Federal Reserve left its policy on hold after its most recent meeting.

What’s next: RBA governor Michele Bullock will hold a media conference at 3.30pm, which is expected to provide more insights into the board’s decision.