RBA’s cash rate decision surprises markets, says REIQ

In a move that has caught financial markets and borrowers off guard, the Reserve Bank of Australia (RBA) decided to hold the cash rate steady at 3.85 per cent in July. This decision, according to the Real Estate Institute of Queensland (REIQ), has introduced an unpredictable pattern of rate cuts throughout 2025, leaving many to question the central bank’s strategy.

Antonia Mercorella, CEO of REIQ, expressed surprise at the RBA’s decision to pause after a series of rate cuts earlier in the year. “Today’s pause will come as an unexpected and somewhat disappointing move for borrowers and businesses alike – but the RBA is best placed to make the judgment,” she stated. This sentiment reflects the broader expectations within the financial community, where many had anticipated a continued easing cycle given the sluggish economy and easing inflation.

The RBA’s cautious stance appears to be a strategic move to assess the impact of previous rate cuts before committing to further action. “Many were expecting a further rate cut in July to support economic activity, especially after a string of soft economic indicators,” Ms Mercorella noted. “Instead, the RBA appears to be tapping the brakes, potentially to allow earlier cuts to flow through the economy before acting again.”

Despite the pause in July, the rate cuts earlier in the year have already begun to alleviate financial pressures on Queensland households. Ms Mercorella highlighted the tangible benefits these cuts have provided, stating, “A borrower with a $647,000 average new owner-occupier loan in Queensland is saving around $196 per month if lenders passed on both 25 basis point cuts of 2025.”

The impact of these cuts extends beyond immediate savings, as they have also expanded borrowing capacity for many Queenslanders. “An average single income earner can still borrow approximately $20,000 more than they could at the start of the year,” Ms Mercorella explained. “For a dual-income couple with two kids, borrowing power is up by about $30,000 – which could be the difference between entering the market or being locked out.”

Despite the benefits of the rate cuts, Ms Mercorella argues that there remains a strong case for continued easing in the coming months. She pointed to several economic indicators that support this position, stating, “Since the last rate cut in May, GDP data confirmed the economy is barely growing, with just 0.2% growth in the March quarter and a 0.4% annual decline in GDP per capita.”

Inflation, a key concern for the RBA, has also moderated significantly. “Inflation has now landed comfortably within the RBA’s target band, with annual CPI at 2.1% in May and annual trimmed mean ‘core’ inflation at 2.4% – the lowest in nearly four years,” Ms Mercorella pointed out. However, she acknowledged the RBA’s cautious approach, noting, “The RBA has acknowledged that while inflation is moderating, they want more evidence it is fully anchored and sustainable within the 2-3% target band.”

Beyond monetary policy, Ms Mercorella emphasised the need for a holistic approach to address the challenges in the housing market. “For property investors, the high borrowing costs of recent years have clearly weighed on sentiment – ABS data shows a 3.7% drop in new investor loans nationally between the December 2024 and March 2025 quarters. For Queensland, the drop was 0.1%,” she said.

Despite these challenges, there are signs of resilience in the market. “The number of new investor loan commitments in Queensland in the March quarter of 2025 of 11,603 remains above the historical average of 9,179 (since the September quarter of 2019), and lower interest rates could further revive investor participation – especially in a tight rental market,” Ms Mercorella commented.

However, she warned that lower interest rates alone are insufficient to restore balance to the housing market. “Loan commitments to owner-occupiers in Queensland remain below historical averages (17,513 in the March quarter of 2025 vs 18,665 average since September quarter of 2002), and unless we see coordinated policy action across all levels of government to boost new housing stock, lower interest rates won’t cut it to restore balance to the housing market,” she said. “Queenslanders need both monetary and policy support to ensure sustainable, long-term affordability.”

The challenge of housing supply remains pressing, with new housing approvals in Queensland falling short of targets. In the 12 months to May 2025, the state approved around 37,600 dwellings, significantly below the 49,300 per year needed to meet its share of the national housing target. This shortfall underscores the need for comprehensive solutions to address the state’s housing needs.