Slow rate of cuts puts squeeze on business, households

Poppy Johnston and Kat Wong | July 9, 2025

A wait of at least five weeks until further interest rate relief is expected to keep the pressure on retailers and other consumer-facing businesses keen for spending to pick up.

In a move that caught markets and most economists by surprise, the Reserve Bank of Australia’s board kept interest rates on hold at 3.85 per cent on Tuesday.

Governor Michele Bullock confirmed the unexpected call was about “timing, not direction”, suggesting further cash rate reductions are likely as long as the next set of quarterly inflation numbers come in soft enough.

That leaves the August meeting in about five weeks a viable option for a cut, with money markets already almost certain of a 25 basis point reduction.

The decision to stay on hold in July would likely keep consumers and businesses feeling cautious, RSM Australia economist Devika Shivadekar said.

“For those who are well-versed with the data, we can understand where the RBA is coming from,” she told AAP.

“But for an ordinary consumer, or for a business owner who is already cash-strapped, any single delay means impacted sentiment and more often than not, that impact on sentiment translates into an impact in activity.”

The reasonably short five-week wait between meetings would be a source of hope for businesses and households on the look-out for rates relief, Ms Shivadekar said.

Gauges of consumer confidence have been tracking more optimistically following the two interest rate cuts already this year but that positivity hasn’t been flowing though to actual spending habits.

Official retail sales numbers have been trending weak for the past six months and disappointed in May even as cooler temperatures sent consumers in search of warm winter layers.

Business confidence as tracked by National Australia Bank picked up last month though Ms Shivadekar said many companies were still nervous about volatility caused by the Trump administration’s trade policies.

For the Australian Retailers Association, the RBA’s July decision was viewed as a “missed opportunity” to improve the outlook of a sector employing one-in-ten Australians.

“Weak consumer spending and high business costs continue to put pressure on retailers,” the association’s chief executive Chris Rodwell said.

“A stronger economic outlook can’t happen without a retail recovery.”

Treasurer Jim Chalmers acknowledged the millions of people hoping for an interest rate cut this week.

“(But) it should be a source of considerable pride to Australians that we’ve done something here that other countries haven’t been able to do – we haven’t paid for progress on inflation with much higher unemployment,” Dr Chalmers told ABC radio on Wednesday.

Ms Bullock nodded to the pressure on households with mortgages during the post-meeting press conference on Tuesday.

“‘I’m also really conscious that we don’t want to end up having to fight inflation again,” she warned.