What prompted surprise hold?
All major banks, including ANZ, Commonwealth Bank, Westpac and NAB, had anticipated the RBA’s to make another interest rate reduction today. The markets, too, had moved to price a 25bps cut in.
The decision was likely fuelled by lingering inflationary fears and living costs continue to bite into Australians' disposable income.
Attention now turns to what happens next.
National house prices have soared to record highs following the sixth straight month of gains in June although today’s hold is unlikely to alleviate much demand-side pricing pressure.
Existing borrowers will be keen to see if lenders intend to adjust their variable rates despite today’s hold. While the majority of banks and alternative lenders passed the May interest rate cut in full, there were a handful of hold outs.
The banking majors have differing predictions on the pacing of the cuts, though their end-of-year forecasts generally fall in the 3.1% and 3.35% ballpark.
Westpac has emerged as the most dovish of the Big Four, with the bank’s economists expecting the cash rate to bottom out at 2.85%.
However, with today’s surprise RBA call, they may begin to reassess their end-of-year forecasts.
Business confidence surging
Alongside today’s surprise rate decision, the NAB Business Confidence Index underscored renewed optimism among Australia’s business community. The index rose to 5 in June – up from 2 in May and marking its highest level since January.
This marks the third consecutive month of improvement, bringing confidence in line with the long-term average.
Solid gains in sales, profitability, and employment underpinned this turnaround, while most industries reported stronger conditions. Manufacturing and retail, in particular, registered the biggest upswings after notable setbacks the previous month.
