July 9, 2025 • 14 mins
The RBA shocked markets this week by keeping interest rates on hold at 3.85%, despite widespread expectations for a third cut in five months. That decision left millions of mortgage holders disappointed and raised new questions about the central bank’s strategy as inflation continues to ease.
This week on the podcast, Chris Bourke speaks with economy reporter Swati Pandey about why markets misread the RBA, what Governor Michele Bullock’s signals mean for future moves, and what could prompt the next cut. They also unpack the impact on housing and how global risks like President Trump’s tariff threats are complicating the outlook.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
A record interest rate cut, first back to backslash since
twenty twenty, is expected when the RBA hands down its
decision today.
Speaker 2 (00:08):
Okay, today, as you know, the Reserve Bank left interest
rates on hold. This is not the outcome that millions
of Australians were hoping for, or the outcome that economists
or the market was expecting.
Speaker 3 (00:22):
I think I do answer questions about to the extent
that I can say where we're going. But sometimes it's
not possible to say where I'm going. I know a
lot of people are really certain that they know exactly
what to do and exactly how to get there. I'm
not quite so certain.
Speaker 1 (00:38):
How did so many get it so wrong? Just as
millions of mortgage holders were expecting a bit more relief,
the Reserve Bank this week said sorry, but interest rates
aren't going anywhere. So when are we getting our next
rate cut? And what does on hold mean for housing markets? Hello?
I'm Chris Burke, and welcome to the Bloomberg Australia Podcast. Okay,
(01:01):
I'm not going to lie. I admit that I fully
expected this week to be discussing the Reserve Bank of
Australia's third rate cut in five months. Joined by a
chorus of celebration from homeowners across the country. Alas it
wasn't to be. Governor Michelle Bullock and her board wrong
footed almost everyone and left the cash rate on hold
at three point eight five percent. To help me unpack
(01:24):
the surprise decision and what we can expect from the
Central Bank in the coming months, I am delighted to
be joined today by our economy reporter from Sydney and
regular star of the RBA press conference, Swarty. Pandy Swarty,
Welcome back to the podcast.
Speaker 4 (01:40):
Thank you, Chris. I'm equally delighted Swarty.
Speaker 1 (01:42):
Markets had fully priced in a rate cut on Tuesday,
and only a handful of economists, including I should say
Bloomberg Economics James McIntyre, were predicting rates to remain on hold.
How did almost everyone get it wrong?
Speaker 4 (01:57):
To answer that question, Chris, let me take you back
to May of twenty twenty five when the RBA cut
interest rates, which was widely expected, but what was surprising
was the signal that they provided, which was of increasing
worry about the global outlook about Australia's economic outlook, and
(02:19):
that prompted markets in particular to start pricing in interest
rate cuts from July onwards. Now, the RBA did not
speak since that meeting in May through till Tuesday when
they decided to hold interest rates. Now, silence can be
interpreted in various ways, and the way economists interpreted the
(02:42):
silence was to say that the RBA is probably comfortable
with market pricing for a July rate cut and further
rate cuts, and so economists changed their forecasts as well
to start predicting a July cut.
Speaker 1 (02:57):
Yeah, and I heard you were one of several journalists
grilling her on that silence. What was her response when
you pose the question about that?
Speaker 4 (03:07):
So, Michelle Bullock was pretty defensive about the RBS communication strategy,
and that is largely because the RBA now has a
new structure under which the board is making a decision
and the statement that comes out along with the rate
decision is signed off by the board and not by
(03:30):
the governor, which was the case in the past. This
was also the first time that the RBA released vote
which showed that six people voted for hold and three
people voted for a cut, And so she was trying
to say that there was debate in the boardroom. We
discussed various scenarios, and we concluded that we needed more
(03:53):
information to decide that it's time to cut further, and
they don't want to be in a situation where they
have cut too much, stimulated the economy too much, and
are having to fight inflation again.
Speaker 1 (04:07):
Yeah, and we also just in terms of the reasons
for the red cut, we did hear Bullet stress at
a press conference that this decision was more about timing
than direction. So for those of us who don't comb
through monetary policy statements on a regular basis, can you
can you explain what she means by that?
Speaker 3 (04:25):
Yeah?
Speaker 4 (04:25):
Sure, So she is basically trying to say that interest
rates are on the way down, so the direction is down.
We will have cuts. It's just the timing. So just
because the RBA did not cut in July, that does
not mean that cuts will not come. So, you know,
(04:45):
we could see a cut in August. We could see
a cut later down the track. If we start seeing
solid data that is pointing to inflation cooling faster than
the RBA has forecast, the easing cycle can really gather momentum.
Speaker 1 (05:01):
Yeah. Once again, it was very much about inflation and
and taming the inflation monster. She did make it clear.
And she kind of reiterated this several times about the
difference between the monthly inflation data that where we get
from the ABS compared with the quarterly inflation data. And
(05:22):
she was saying she wanted to wait and see the
next quarterly reading because they take more notice of that
than the monthly inflation reading. But you know, again, for
those of us who may not be used to a
lot of this jargon, she spoke about the trimmed mean
number that she wants to see in the quarterly inflation data.
(05:44):
What does a trimmed mean SWATI?
Speaker 4 (05:46):
So trimmed mean is also known as underlying inflation, also
known as core inflation. It is RBA's Brefford gauge of prices.
It takes out volatility, so it takes out a lot
of price gauges which tend to be volatile in nature
or where price movements are really sharp. So, for example,
(06:09):
let's say there are there's floods in Queensland and banana
production is affected as a result, Banana prices search so
the headline inflation will go up very sharply, but trimmed
mean inflation will not because it is it will strip
away that volatility, So it kind of provides a clearer
(06:31):
reading of where prices are. It provides a better trend
of where prices are, and the RBA can then look
through some of their short term temporary impacts that are
happening around the economy.
Speaker 1 (06:45):
The governor got a bit of a hard time at
the press conference. How do you think she handled it?
Speaker 4 (06:50):
She did, She did get a hard time. I do
agree with you. We have said in our reporting in
our story that this was the most grilling that she
has received since she started doing press conferences last year.
She likes to talk about some topics like payments, like productivity,
(07:10):
and she would spend more time on it, provide longer answers,
and then topics which are a bit difficult, she just
kind of goes around them. She does try to answer
as much as possible, but yeah, she's definitely good at
at dodging some of those difficult ones.
Speaker 1 (07:31):
So the next RBA decision is in around five weeks.
What are we going to see before then that could
make the board set up and say, yep, this time
we're going to cut.
Speaker 4 (07:42):
So the biggest one, which you allued it to Chris
just a little while ago, is inflation, quarterly inflation, the
trimmed mean number. We are expecting that data to come
out later this month, at the end of July, and
that is going to be the figure which will break
or make expectations. And if it is two point six
(08:07):
or below, we will see a rate cut, most likely
in August. If it is a higher number, then forget
about it. So everybody should wait and watch for that
trim mean figure and keep their fingers crossed for it
to be at two point six or below.
Speaker 1 (08:25):
What about markets, have they changed their minds? What are
investors now expecting the IBA will do this for the
rest of this year? According to one of the latest
steps on the Bloomberg terminal.
Speaker 4 (08:35):
They surely have. So before Tuesday's rate decision, markets were
very confident Australia would have three interest rate cuts in
twenty twenty three, more interest rate cuts in twenty twenty five,
and at the start of twenty twenty six interest rates
would be below three percent from three point eighty five.
(08:57):
And now the expectation is for two and the third
cut has been pushed back to twenty twenty six. So
markets have definitely listened to Michelle Bullock and they have
trimmed their expectations, but again when we get inflation report
at the end of July, those pricing would.
Speaker 1 (09:18):
Shift when we come back. How is all this will
they won't they? Rates talk impacting our favorite topic, the
Australian housing market. Welcome back. I'm Chris Burker and you're
listening to the Bloomberg Australian Podcast. I'm talking to Swatty Pandy,
(09:42):
our Sydney based economy reporter, about the RBA surprise decision
to hold back on giving Australians a rate cut this week.
So Swati, it wouldn't be a podcast about interest rates
if we didn't talk about housing. What has the market
been doing since we got those two rate cuts earlier
this year.
Speaker 4 (10:00):
So Australian home prices are on a tear again, what
a surprise. So they climbed for a fifth straight month
in June. Every major city except Hobart rose in June.
And affordability concern still remains. But the fact that interest
(10:22):
rates have come down, borrowing costs have eased, it has
definitely added some more fuel in the in Australia's housing market.
And Melbourne, which was which was pretty weak last year,
is kind of picking.
Speaker 1 (10:35):
Up as well, So getting at your crystal ball again,
what do you reckon? Do you reckon that this week's
unexpected decision? What do you think the impact will be
on the on the market. Of course it's probably disappointed
quite a few potential home buyers, but could they become
more wary if there's if there's for instance, too much
(10:56):
uncertainty around borrowing costs and these decisions.
Speaker 4 (11:00):
Chris, So you know, in a response to my previous question,
to your previous question, sorry, where you said about direction
and timing. So I think households do understand and the
message that is going out there is that the direction
of interest rate is still down and if you are
(11:21):
buying a home, it is a long term investment. So
people would I'm assuming, based on the data that we
are seeing, based on auction clearance rates, based on listings,
people are still making those decisions because in Australia's property market,
in particular Sydney and other big cities, there is a
(11:44):
formo in the market right, fear of missing out. So
you do not probably want to wait for interest rates
to come down, because the fear is that is going
to spark prices further and then you're going to miss out.
So the attitude that people tend to have is let's
just jump in now. If you are getting good price,
(12:04):
if you're getting.
Speaker 1 (12:05):
A good deal, yeah, really good points. Look, of course,
much of this uncertainty we're talking about is being caused
by global factors. If you can keep up with just
what Donald Trump is tariffing on a daily basis, then
frankly you're a better journalist than me. But look what
is keeping the RBA awake at night and how might
(12:25):
that impact the path of rate cuts in terms of
global global factors.
Speaker 4 (12:30):
Yes, tariff is a huge part of their thinking at
the moment. They have done some scenario analysis and some modeling.
Their current thinking is that the worst case scenario has
not come to pass. But again it's still early days.
Like you said, it's difficult to keep track of what's happening.
(12:54):
We are hearing about some sectoral tariffs now, which is
an addition to country vise tariffs, So it's still very fluid.
Things are moving really rapidly and it's difficult to gauge
what the impact would be. And I was at an
event on Wednesday where Andrew Houser, RBS, Deputy Governor, was speaking,
(13:18):
and he was asked this very question, and to that
he said, sometimes it is really difficult to know right
at that point what will happen. And he gave the
example of Brexit where the predictions were quite dire for
a Brexit scenario when brigsit happened, though Britain was all right,
(13:39):
it did not die. But ten years since, look at
what's happening in the UK. And that was the example
he was trying to give to tell the world that
ten years from now we will probably see a greater
impact of what Trump is doing today.
Speaker 1 (13:55):
Okay, on that cherry note, So I guess it's now
a countdown to July thirty. That's the day we get
the quarterly inflation figure that may or may not confirm
we're getting a rake cut next month, Swary, I'll be
relying on you to make that call. This time, maybe
more people might get it right. Spiey Pandy, thank you
for joining us on the Bloomberg Australia Podcast.
Speaker 4 (14:17):
Thank you, Chriss, it was a pleasure.
Speaker 1 (14:21):
If you found today's conversation insightful, be sure to follow
the Bloomberg Australia Podcast wherever you listen and check more
reading on the economy, including the latest reporting from Swati
on Bloomberg dot Com. This episode was recorded on the
traditional lands of the Warundry and Galligal people. It was
produced by Paul Allen and edited by Rebecca Jones and
(14:42):
Ainsley Chandler. I'm Chris Burke.
A record interest rate cut, first back to backslash since
twenty twenty, is expected when the RBA hands down its
decision today.
Speaker 2 (00:08):
Okay, today, as you know, the Reserve Bank left interest
rates on hold. This is not the outcome that millions
of Australians were hoping for, or the outcome that economists
or the market was expecting.
Speaker 3 (00:22):
I think I do answer questions about to the extent
that I can say where we're going. But sometimes it's
not possible to say where I'm going. I know a
lot of people are really certain that they know exactly
what to do and exactly how to get there. I'm
not quite so certain.
Speaker 1 (00:38):
How did so many get it so wrong? Just as
millions of mortgage holders were expecting a bit more relief,
the Reserve Bank this week said sorry, but interest rates
aren't going anywhere. So when are we getting our next
rate cut? And what does on hold mean for housing markets? Hello?
I'm Chris Burke, and welcome to the Bloomberg Australia Podcast. Okay,
(01:01):
I'm not going to lie. I admit that I fully
expected this week to be discussing the Reserve Bank of
Australia's third rate cut in five months. Joined by a
chorus of celebration from homeowners across the country. Alas it
wasn't to be. Governor Michelle Bullock and her board wrong
footed almost everyone and left the cash rate on hold
at three point eight five percent. To help me unpack
(01:24):
the surprise decision and what we can expect from the
Central Bank in the coming months, I am delighted to
be joined today by our economy reporter from Sydney and
regular star of the RBA press conference, Swarty. Pandy Swarty,
Welcome back to the podcast.
Speaker 4 (01:40):
Thank you, Chris. I'm equally delighted Swarty.
Speaker 1 (01:42):
Markets had fully priced in a rate cut on Tuesday,
and only a handful of economists, including I should say
Bloomberg Economics James McIntyre, were predicting rates to remain on hold.
How did almost everyone get it wrong?
Speaker 4 (01:57):
To answer that question, Chris, let me take you back
to May of twenty twenty five when the RBA cut
interest rates, which was widely expected, but what was surprising
was the signal that they provided, which was of increasing
worry about the global outlook about Australia's economic outlook, and
(02:19):
that prompted markets in particular to start pricing in interest
rate cuts from July onwards. Now, the RBA did not
speak since that meeting in May through till Tuesday when
they decided to hold interest rates. Now, silence can be
interpreted in various ways, and the way economists interpreted the
(02:42):
silence was to say that the RBA is probably comfortable
with market pricing for a July rate cut and further
rate cuts, and so economists changed their forecasts as well
to start predicting a July cut.
Speaker 1 (02:57):
Yeah, and I heard you were one of several journalists
grilling her on that silence. What was her response when
you pose the question about that?
Speaker 4 (03:07):
So, Michelle Bullock was pretty defensive about the RBS communication strategy,
and that is largely because the RBA now has a
new structure under which the board is making a decision
and the statement that comes out along with the rate
decision is signed off by the board and not by
(03:30):
the governor, which was the case in the past. This
was also the first time that the RBA released vote
which showed that six people voted for hold and three
people voted for a cut, And so she was trying
to say that there was debate in the boardroom. We
discussed various scenarios, and we concluded that we needed more
(03:53):
information to decide that it's time to cut further, and
they don't want to be in a situation where they
have cut too much, stimulated the economy too much, and
are having to fight inflation again.
Speaker 1 (04:07):
Yeah, and we also just in terms of the reasons
for the red cut, we did hear Bullet stress at
a press conference that this decision was more about timing
than direction. So for those of us who don't comb
through monetary policy statements on a regular basis, can you
can you explain what she means by that?
Speaker 3 (04:25):
Yeah?
Speaker 4 (04:25):
Sure, So she is basically trying to say that interest
rates are on the way down, so the direction is down.
We will have cuts. It's just the timing. So just
because the RBA did not cut in July, that does
not mean that cuts will not come. So, you know,
(04:45):
we could see a cut in August. We could see
a cut later down the track. If we start seeing
solid data that is pointing to inflation cooling faster than
the RBA has forecast, the easing cycle can really gather momentum.
Speaker 1 (05:01):
Yeah. Once again, it was very much about inflation and
and taming the inflation monster. She did make it clear.
And she kind of reiterated this several times about the
difference between the monthly inflation data that where we get
from the ABS compared with the quarterly inflation data. And
(05:22):
she was saying she wanted to wait and see the
next quarterly reading because they take more notice of that
than the monthly inflation reading. But you know, again, for
those of us who may not be used to a
lot of this jargon, she spoke about the trimmed mean
number that she wants to see in the quarterly inflation data.
(05:44):
What does a trimmed mean SWATI?
Speaker 4 (05:46):
So trimmed mean is also known as underlying inflation, also
known as core inflation. It is RBA's Brefford gauge of prices.
It takes out volatility, so it takes out a lot
of price gauges which tend to be volatile in nature
or where price movements are really sharp. So, for example,
(06:09):
let's say there are there's floods in Queensland and banana
production is affected as a result, Banana prices search so
the headline inflation will go up very sharply, but trimmed
mean inflation will not because it is it will strip
away that volatility, So it kind of provides a clearer
(06:31):
reading of where prices are. It provides a better trend
of where prices are, and the RBA can then look
through some of their short term temporary impacts that are
happening around the economy.
Speaker 1 (06:45):
The governor got a bit of a hard time at
the press conference. How do you think she handled it?
Speaker 4 (06:50):
She did, She did get a hard time. I do
agree with you. We have said in our reporting in
our story that this was the most grilling that she
has received since she started doing press conferences last year.
She likes to talk about some topics like payments, like productivity,
(07:10):
and she would spend more time on it, provide longer answers,
and then topics which are a bit difficult, she just
kind of goes around them. She does try to answer
as much as possible, but yeah, she's definitely good at
at dodging some of those difficult ones.
Speaker 1 (07:31):
So the next RBA decision is in around five weeks.
What are we going to see before then that could
make the board set up and say, yep, this time
we're going to cut.
Speaker 4 (07:42):
So the biggest one, which you allued it to Chris
just a little while ago, is inflation, quarterly inflation, the
trimmed mean number. We are expecting that data to come
out later this month, at the end of July, and
that is going to be the figure which will break
or make expectations. And if it is two point six
(08:07):
or below, we will see a rate cut, most likely
in August. If it is a higher number, then forget
about it. So everybody should wait and watch for that
trim mean figure and keep their fingers crossed for it
to be at two point six or below.
Speaker 1 (08:25):
What about markets, have they changed their minds? What are
investors now expecting the IBA will do this for the
rest of this year? According to one of the latest
steps on the Bloomberg terminal.
Speaker 4 (08:35):
They surely have. So before Tuesday's rate decision, markets were
very confident Australia would have three interest rate cuts in
twenty twenty three, more interest rate cuts in twenty twenty five,
and at the start of twenty twenty six interest rates
would be below three percent from three point eighty five.
(08:57):
And now the expectation is for two and the third
cut has been pushed back to twenty twenty six. So
markets have definitely listened to Michelle Bullock and they have
trimmed their expectations, but again when we get inflation report
at the end of July, those pricing would.
Speaker 1 (09:18):
Shift when we come back. How is all this will
they won't they? Rates talk impacting our favorite topic, the
Australian housing market. Welcome back. I'm Chris Burker and you're
listening to the Bloomberg Australian Podcast. I'm talking to Swatty Pandy,
(09:42):
our Sydney based economy reporter, about the RBA surprise decision
to hold back on giving Australians a rate cut this week.
So Swati, it wouldn't be a podcast about interest rates
if we didn't talk about housing. What has the market
been doing since we got those two rate cuts earlier
this year.
Speaker 4 (10:00):
So Australian home prices are on a tear again, what
a surprise. So they climbed for a fifth straight month
in June. Every major city except Hobart rose in June.
And affordability concern still remains. But the fact that interest
(10:22):
rates have come down, borrowing costs have eased, it has
definitely added some more fuel in the in Australia's housing market.
And Melbourne, which was which was pretty weak last year,
is kind of picking.
Speaker 1 (10:35):
Up as well, So getting at your crystal ball again,
what do you reckon? Do you reckon that this week's
unexpected decision? What do you think the impact will be
on the on the market. Of course it's probably disappointed
quite a few potential home buyers, but could they become
more wary if there's if there's for instance, too much
(10:56):
uncertainty around borrowing costs and these decisions.
Speaker 4 (11:00):
Chris, So you know, in a response to my previous question,
to your previous question, sorry, where you said about direction
and timing. So I think households do understand and the
message that is going out there is that the direction
of interest rate is still down and if you are
(11:21):
buying a home, it is a long term investment. So
people would I'm assuming, based on the data that we
are seeing, based on auction clearance rates, based on listings,
people are still making those decisions because in Australia's property market,
in particular Sydney and other big cities, there is a
(11:44):
formo in the market right, fear of missing out. So
you do not probably want to wait for interest rates
to come down, because the fear is that is going
to spark prices further and then you're going to miss out.
So the attitude that people tend to have is let's
just jump in now. If you are getting good price,
(12:04):
if you're getting.
Speaker 1 (12:05):
A good deal, yeah, really good points. Look, of course,
much of this uncertainty we're talking about is being caused
by global factors. If you can keep up with just
what Donald Trump is tariffing on a daily basis, then
frankly you're a better journalist than me. But look what
is keeping the RBA awake at night and how might
(12:25):
that impact the path of rate cuts in terms of
global global factors.
Speaker 4 (12:30):
Yes, tariff is a huge part of their thinking at
the moment. They have done some scenario analysis and some modeling.
Their current thinking is that the worst case scenario has
not come to pass. But again it's still early days.
Like you said, it's difficult to keep track of what's happening.
(12:54):
We are hearing about some sectoral tariffs now, which is
an addition to country vise tariffs, So it's still very fluid.
Things are moving really rapidly and it's difficult to gauge
what the impact would be. And I was at an
event on Wednesday where Andrew Houser, RBS, Deputy Governor, was speaking,
(13:18):
and he was asked this very question, and to that
he said, sometimes it is really difficult to know right
at that point what will happen. And he gave the
example of Brexit where the predictions were quite dire for
a Brexit scenario when brigsit happened, though Britain was all right,
(13:39):
it did not die. But ten years since, look at
what's happening in the UK. And that was the example
he was trying to give to tell the world that
ten years from now we will probably see a greater
impact of what Trump is doing today.
Speaker 1 (13:55):
Okay, on that cherry note, So I guess it's now
a countdown to July thirty. That's the day we get
the quarterly inflation figure that may or may not confirm
we're getting a rake cut next month, Swary, I'll be
relying on you to make that call. This time, maybe
more people might get it right. Spiey Pandy, thank you
for joining us on the Bloomberg Australia Podcast.
Speaker 4 (14:17):
Thank you, Chriss, it was a pleasure.
Speaker 1 (14:21):
If you found today's conversation insightful, be sure to follow
the Bloomberg Australia Podcast wherever you listen and check more
reading on the economy, including the latest reporting from Swati
on Bloomberg dot Com. This episode was recorded on the
traditional lands of the Warundry and Galligal people. It was
produced by Paul Allen and edited by Rebecca Jones and
(14:42):
Ainsley Chandler. I'm Chris Burke.
Popular Podcasts
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Special Summer Offer: Exclusively on Apple Podcasts, try our Dateline Premium subscription completely free for one month! With Dateline Premium, you get every episode ad-free plus exclusive bonus content.
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy, Jess Hilarious, And Charlamagne Tha God!
Crime Junkie
Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.