RBA News: Banks Launch Rate War After Surprise July Hold

RBA News: Banks Launch Rate War After Surprise July Hold

RBA News: Banks Launch Rate War After Surprise July Hold

RBA news has sent shock waves through Australia’s financial markets as the central bank unexpectedly held interest rates steady in July. This surprise decision has triggered an unusual response from major lenders, who have launched an aggressive rate war despite the official cash rate remaining unchanged.

Although many economists had predicted another rate hike, the Reserve Bank of Australia opted to maintain current levels, carefully balancing inflation concerns against economic growth considerations. Consequently, Australia’s banking sector has responded with competitive fervor, with several institutions cutting their fixed and variable mortgage rates to attract new customers. Meanwhile, existing borrowers now find themselves in a potentially advantageous position to refinance and secure better deals. Furthermore, this competitive environment raises important questions about future RBA decisions and how long this favorable climate for borrowers might last.

RBA surprises markets by holding rates in July

The Reserve Bank of Australia (RBA) stunned financial markets on July 8 by maintaining the cash rate at 3.85%, defying widespread predictions of further monetary easing. This decision marked a significant shift from the central bank’s previous cuts in February and May, leaving experts and economists scrambling to reassess their forecasts.

Why the July hold defied expectations

The RBA’s decision came as a considerable shock to financial markets, which had priced in a 96% chance of a 0.25 percentage point cut [1]. Most major financial institutions and economic commentators had predicted a rate reduction, with some markets placing as high as a 97% probability on a July cut [2].

What made this decision particularly notable was the contrast with prevailing economic indicators that typically signal rate cuts. The market consensus had solidified after recent inflation figures showed consumer prices rising less than expected, while economic growth had simultaneously slowed in the first quarter [3].

In an unprecedented move, the RBA revealed the exact vote tally of its monetary policy board members—six voting to hold the cash rate and three advocating for an immediate cut [4]. This rare division among board members highlighted the complex considerations behind the decision.

Governor Michele Bullock clarified that the split did not concern the direction of policy—which most agreed should continue easing—but rather the timing of further cuts [5]. During her post-meeting press conference, Bullock opened the door to future easing, indicating that rates were still expected to move downward [1].

How inflation and employment data influenced the decision

Central to the RBA’s reasoning was a cautious interpretation of inflation data. “A lot of people focused on the headline CPI number at 2.1%, but we don’t think inflation in a sustainable way is that low. We think it’s higher,” explained Governor Bullock [6]. The board emphasized that underlying inflation, which stood at 2.9% in the March quarter, provided a better indication of inflationary pressures than headline figures [6].

The labor market’s resilience also played a decisive role. The RBA noted that “various indicators suggest that labor market conditions remain tight” [4] with the unemployment rate steady at 4.1%, close to historical lows [7]. This tight labor market creates upward pressure on wages, which could potentially reignite inflation if eased too quickly.

Additionally, the board highlighted concerns about unit labor costs, noting that while wage growth had softened from its peak, productivity growth had not improved correspondingly [4]. This imbalance creates potential inflation risks that required careful monitoring.

The RBA signaled it wanted to review the quarterly inflation report due on July 30 before making further moves [5]. “By then, we will know what the June quarter CPI is and if it comes in as we think it will… then that validates our easing path,” Bullock stated [6].

Essentially, the central bank chose prudence over haste. With the cash rate already 50 basis points lower than five months prior, the board judged it could afford to wait for more definitive evidence that inflation was sustainably trending toward the 2.5% target [4].

This cautious approach disappointed many Australians hoping for mortgage relief, including Treasurer Jim Chalmers, who acknowledged, “This is not the outcome that millions of Australians were hoping for or the outcome that economists or the market was expecting” [1].

Major banks launch rate war after RBA pause

In a surprising twist following the RBA’s decision to keep rates steady, Australia’s major banks have launched an unexpected rate-cutting offensive. This competitive drive demonstrates the complex relationship between official cash rates and the lending market, as financial institutions fight for market share amid changing economic conditions.

Which banks cut rates first and by how much

Following the RBA’s hold decision in July, several banks moved quickly to cut rates independently. ANZ reduced its progress saver account from 3.5% to 3.4% per year [8], even though the RBA maintained its target rate. NAB trimmed its term deposit rates by 5 to 20 basis points across multiple terms, with its 7-month term falling by 20 basis points to 3.80% [9]. Seventeen banks in total made term deposit cuts following the RBA’s decision [9].

Prior to the July hold, banks had fully passed on the RBA’s previous cuts. In May, NAB was the first major bank to respond to the RBA’s decision, announcing one minute after the central bank’s announcement that it would pass the 25-basis-point cut to mortgage borrowers [10]. Subsequently, ANZ, Commonwealth Bank, and Westpac followed suit with the same 0.25% reduction [11]. Macquarie Bank likewise decreased its variable home loan reference rates by 0.25% per annum [11].

Fixed home loan rates are now falling as well, with four lenders cutting rates following the RBA decision [9]. QBANK reduced its fixed rates by 20 to 30 basis points, with SWS Bank, Coastline Bank, and The Capricornian making similar moves [9].

How lenders are competing for new borrowers

The lending market has become increasingly competitive, with banks deploying various strategies to attract new customers. Westpac reduced its variable rate home loans by up to 35 basis points, offering new customers a variable rate of 5.84%, matching the lowest variable rate among the big four banks [1]. However, this offer comes with conditions – customers must apply online and have a 30% deposit [1].

Beyond rate cuts, lenders are competing through:

  • Waiving fees and offering incentives to new borrowers [6]
  • Accelerating approval times to attract borrowers [6]
  • Aggressive pricing strategies, with some non-bank lenders cutting rates by double the RBA’s reductions [12]
  • Digital-only offerings with better rates than traditional products [1]

Non-bank commercial lender Prime Capital exemplifies this competitive intensity by cutting rates by up to 50 basis points — double the RBA’s recent reductions [12]. According to Canstar data, more than 65 lenders changed their home loan rates following the RBA’s May meeting [6].

Expert commentary on the rate war dynamics

Financial experts view this as the beginning of a significant competitive period. Sally Tindall, Research Director at Canstar, describes the current situation as a “refinance war” as banks look to attract new customers [1]. “This is great news for people with a home loan,” she noted, though cautioning that “rock bottom rates are reserved for new customers with decent sized deposits” [1].

Rachel Wastell, personal finance expert at Mozo, observed that the banks’ actions signal their expectation of future RBA cuts: “If banks thought rates were staying put, we wouldn’t be seeing term deposits and fixed-rate home loans falling” [9]. She added, “The fact that both big and small lenders are trimming fixed rates across home loans and deposits, even after the RBA paused last week, suggests they’re confident further cash rate cuts are coming” [9].

According to ABS data, Australians refinanced more than AUD 314.97 billion worth of loans in 2024 [1], indicating an already active market that could further accelerate as rates continue to fall. Nonetheless, Tindall points out that customers could find even better rates outside the big four banks, with over 35 lenders offering at least one variable rate under 5.75% [1].

What economic signals are driving bank forecasts

Economic indicators continue to shape bank rate forecasts as financial institutions navigate Australia’s complex monetary landscape. Behind the latest RBA news and banking sector movements lies a rich tapestry of economic signals that banks are monitoring closely.

Inflation trends and CPI data

Recent inflation figures show significant moderation, with the Consumer Price Index rising 0.9% in the March 2025 quarter and 2.4% over the twelve months [13]. Notably, the trimmed mean inflation—a critical measure watched by the RBA—has fallen to 2.9%, its lowest level since December 2021 [13]. This places underlying inflation within the RBA’s target band of 2-3% for the first time since 2021 [14].

The May Statement on Monetary Policy revealed that the RBA has revised its inflation outlook downward, now expecting underlying inflation to settle “around the midpoint of the 2–3 per cent range” throughout much of the forecast period [2]. This easing inflation trajectory has been supported by declining oil prices and the extension of the Electricity Bill Relief Fund in the 2025-2026 Australian Government Budget [2].

GDP growth and consumer spending

The Australian economy grew by a modest 0.2% in seasonally adjusted chain volume measures for the March quarter [15]. In nominal terms, GDP rose 1.4%, while the terms of trade increased slightly by 0.1% [15]. Household consumption grew 0.4%, with essential spending rising 0.4% and discretionary spending increasing 0.3% [15].

Monthly household spending indicators show a 0.9% rise in May 2025 compared to April, with discretionary spending increasing 1.1% month-on-month [16]. Yet, the GDP growth outlook has been revised downward since February, with recovery expected to be more gradual due to weaker global growth prospects and increased international policy uncertainty [2].

Labor market resilience and wage growth

The unemployment rate has remained remarkably stable at 4.1% [17], demonstrating considerable resilience in Australia’s labor market. The Wage Price Index rose 0.9% in the March quarter, bringing the annual wage growth to 3.4% [17]. Private sector wages grew 3.3% annually, whereas public sector wages increased 3.6% [17].

Nevertheless, RBA forecasts indicate a slight softening ahead, with unemployment expected to rise marginally over the first half of 2025 before stabilizing around 4.25% [18]. Wage pressures in the private sector are anticipated to ease only slightly as labor market conditions have largely stabilized [18].

Ultimately, the underlying economic data presents a mixed picture—inflation is moderating, economic growth remains subdued yet positive, plus the labor market continues to show strength despite forecasts of minimal easing. Given these signals, banks appear to be positioning themselves for a continuing easing cycle, even as they remain cautious about the pace and timing of future RBA moves.

How borrowers can benefit from the rate war

The competitive lending landscape has created substantial opportunities for Australian homeowners as banks fight for market share. With rates dropping independently of RBA news, borrowers now have several avenues to reduce costs and improve their financial position.

Refinancing opportunities and savings potential

For a standard mortgage of AUD 764,495, borrowers could save approximately AUD 116.20 monthly if their bank passes on a full 0.25% rate cut [3]. Over a year, this translates to savings of AUD 1,403.61 [7]. Indeed, the benefits compound significantly over time – maintaining repayments at pre-cut levels after a rate reduction could save borrowers AUD 126,906.19 in interest over the loan term and help pay off the mortgage two years earlier [19].

Refinancing activity has already reached record levels, with volumes rising by 12.5% in the March quarter compared to the previous year [20]. Western Australia has seen the strongest growth in refinancing at 27.8% year-on-year [20], signaling borrowers’ increasing willingness to switch lenders for better deals.

Impact on borrowing capacity and serviceability

Rate reductions directly boost borrowing power. A single borrower earning the average full-time wage of AUD 153,345 could see their borrowing capacity increase by AUD 18,347 following a 0.25% rate cut [21]. For couples both earning average wages, this figure jumps to AUD 35,319 [21].

This expanded borrowing capacity occurs because lenders assess loans using the actual interest rate plus a buffer (currently 3%). Hence, as rates fall, so does the assessment rate [22], allowing borrowers to qualify for larger loans.

Tips for negotiating better home loan deals

When approaching lenders for better rates, several strategies prove effective:

  • Research competitive rates before negotiations – compare what rates other lenders offer for your situation [23]
  • Highlight your loan-to-value ratio if it’s below 70%, as this typically qualifies you for better rates [24]
  • Emphasize your payment history and customer loyalty when requesting discounts [25]
  • Ask specifically for the same rates offered to new customers [23]
  • Be prepared to switch lenders if your current one won’t budge – 90% of brokers prompt clients to consider their options [26]

Most importantly, don’t assume your bank will automatically reduce your rate – 95% of NAB customers kept their repayments at pre-cut levels to pay down their loans faster [19], demonstrating how proactive management can yield substantial long-term benefits.

Will the RBA resume cuts in August or later?

Financial markets currently price in a high probability of the RBA resuming its rate-cutting cycle in August, as attention shifts to upcoming economic data and global developments.

Market pricing and futures data

ASX 30 Day Interbank Cash Rate Futures for August 2025 indicate a 52% expectation of an interest rate decrease to 3.35% at the next RBA Board meeting [27]. Following June’s weaker-than-expected jobs figures, this probability increased to nearly 100% [28]. The unemployment rate rose to 4.3% in June, exceeding the RBA’s forecast of 4.2% [28], creating what one economist described as a “slam dunk” case for an August cut.

Major banks have divergent forecasts on the rate path:

  • CBA predicts quarterly cuts throughout 2025, reaching 3.35% by year-end [4]
  • Westpac anticipates cuts in August and November [4]
  • ANZ expects the cash rate to reach 3.35% by August [4]
  • NAB projects a faster easing cycle, with rates falling to 2.6% by 2026 [4]

Scenarios that could trigger further easing

The June quarter inflation data (releasing July 30) represents the critical trigger point for August’s decision. Governor Bullock explicitly stated, “If it comes in as we think it will, continuing to decline, then that validates our easing path” [5]. The RBA anticipates a trimmed mean inflation rate of 2.6% – a figure that would virtually guarantee an August cut [5].

Moreover, a “severe downside scenario” involving international trade disruptions could prompt the RBA to “respond decisively” with faster, deeper cuts [29]. Under this scenario, PIMCO’s head of Australia portfolio management suggests the cash rate could drop below 3% [30].

Global risks including US tariffs and China slowdown

The unpredictability of Trump’s trade policies remains the foremost external threat. RBA assistant governor Sarah Hunter noted these tariffs would lead to “weaker growth, lower inflation and a slightly weaker labor market” in Australia [31]. Market volatility spiked after Trump’s initial tariff announcements, yet subsequently moderated as investors anticipated less extreme outcomes [32].

Concurrently, China’s economic challenges, especially in its property sector, pose significant risks for Australia as our largest trading partner [33]. Chinese authorities’ policy responses, particularly regarding infrastructure stimulus, are being closely monitored by the RBA as potential offsetting factors against global trade disruptions [34].

Conclusion

The unexpected RBA decision to hold rates in July has paradoxically triggered an aggressive competition among Australian lenders. Despite maintaining the official cash rate, major banks have slashed their lending rates, creating a favorable environment for both new and existing borrowers. This unusual market dynamic demonstrates how financial institutions sometimes operate independently of central bank signals when strategic advantages beckon.

Borrowers certainly stand to benefit from this competitive landscape. Refinancing opportunities now offer substantial savings—potentially over $126,000 across a loan term for average mortgages. Additionally, borrowing capacity has expanded, with couples on average wages seeing potential increases of more than $35,000 in their borrowing power.

Economic indicators paint a complex picture behind these developments. Inflation has moderated to within the RBA’s target band for the first time since 2021, though GDP growth remains modest at 0.2% for the March quarter. Meanwhile, the labor market continues to show remarkable resilience with unemployment holding steady around 4.1%, thus complicating the RBA’s decision-making process.

Market sentiment strongly suggests the rate-cutting cycle will resume in August, with futures data indicating high probabilities of further easing. The upcoming June quarter inflation data, scheduled for release on July 30, will likely serve as the decisive factor. External threats nevertheless loom large, particularly potential US tariffs and China’s economic challenges, which could force the RBA toward more aggressive easing if conditions deteriorate.

Australian borrowers should therefore remain vigilant and proactive. The current rate war presents rare opportunities to secure favorable terms, though these advantages may prove temporary as economic conditions evolve. Ultimately, this unexpected pause in the RBA’s easing cycle has created a surprisingly competitive lending environment that savvy borrowers can leverage to their significant financial benefit.

References

[1] – https://www.news.com.au/finance/economy/interest-rates/westpac-drops-variable-rates-as-competition-for-refinancing-heats-up/news-story/d19bb5196a24efe3ec9f04a7a402a924
[2] – https://www.rba.gov.au/publications/smp/2025/may/outlook.html
[3] – https://hudsonfinancialplanning.com.au/resources/education-reports/rba-interest-rate-cut-financial-impact/
[4] – https://www.mortgagechoice.com.au/news/shock-likelihood-of-interest-rate-cut-path-for-2025/
[5] – https://www.abc.net.au/news/2025-07-09/interest-rates-on-hold-rba-analysis/105509056
[6] – https://www.brokernews.com.au/news/breaking-news/competitive-lending-market-a-win-for-brokers-and-borrowers-287238.aspx
[7] – https://www.abc.net.au/news/2025-07-07/potential-for-four-rba-interest-rate-cuts-into-next-year/105496540
[8] – https://www.theguardian.com/australia-news/2025/jul/20/as-more-australians-save-banks-are-cutting-interest-rates-for-deposits-faster-than-the-rbas-offical-cash-rate
[9] – https://au.finance.yahoo.com/news/nab-anz-slash-interest-rates-as-lenders-move-despite-rba-cash-rate-hold-not-a-coincidence-053956394.html
[10] – https://www.afr.com/companies/financial-services/vast-majority-of-borrowers-elected-not-to-take-february-cash-rate-cut-20250519-p5m0hr
[11] – https://www.abc.net.au/news/2025-05-20/banks-react-to-rba-decision-to-cut-interest-rates/105314694
[12] – https://www.brokernews.com.au/news/breaking-news/prime-capital-doubles-rba-rate-reductions-intensifying-lender-wars-287302.aspx
[13] – https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release
[14] – https://theconversation.com/reserve-bank-holds-rates-steady-cautious-about-the-economic-outlook-253434
[15] – https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release
[16] – https://www.abs.gov.au/statistics/economy/finance/monthly-household-spending-indicator/latest-release
[17] – https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release
[18] – https://www.rba.gov.au/publications/smp/2025/feb/outlook.html
[19] – https://www.savings.com.au/news/how-the-big-4-banks-responded-to-rba-may-cash-rate-cut
[20] – https://www.theadviser.com.au/borrower/47002-refinancing-rebounds-after-rate-cut-spurs-mortgage-competition
[21] – https://www.realestatebusiness.com.au/growth/29467-february-rate-cut-could-see-average-borrowing-capacity-increase-by-12k
[22] – https://propertyplanning.com.au/borrowing-power-vs-property-prices-the-impact-of-rate-cuts/
[23] – https://www.canstar.com.au/finance-news/negotiate-better-home-loan-rate/
[24] – https://www.yourmortgage.com.au/mortgage-news/westpac-takes-first-shot-in-refinancing-war-slashing-variable-rates
[25] – https://www.finspo.com.au/learn/how-to-negotiate-a-better-home-loan-rate/
[26] – https://www.mfaa.com.au/news/serviceability-barriers-reduce-cost-of-living-pressures-climb-for-home-loan-borrowers
[27] – https://www.asx.com.au/markets/trade-our-derivatives-market/futures-market/rba-rate-tracker
[28] – https://www.news.com.au/finance/economy/interest-rates/rba-rate-pause-had-no-real-economic-benefit-westpac/news-story/1ec59b751122fa4113a5ffb88242c601
[29] – https://www.rba.gov.au/media-releases/2025/mr-25-13.html
[30] – https://www.abc.net.au/news/2025-05-20/rba-statement-on-monetary-policy-interest-rates-analysis/105311384
[31] – https://www.abc.net.au/news/2025-06-03/reserve-bank-australia-trump-tariffs-higher-uncertainty-impact/105370286
[32] – https://www.rba.gov.au/publications/smp/2025/may/in-depth-global-economy-and-financial-markets.html
[33] – https://www.rba.gov.au/publications/bulletin/2025/jan/behind-the-great-wall-chinas-post-pandemic-policy-priorities.html
[34] – https://www.afr.com/policy/economy/rba-awaits-china-stimulus-to-protect-australia-20250411-p5lqxz


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