Australian Bond Exchange Weekly Update
18th July 2025
Key Points
- Australia: The Reserve Bank of Australia (RBA) kept the cash rate steady at 3.85% p.a. Headline inflation eased to 2.1% in May, while core inflation (excluding volatile items) edged down to 2.4%.
- United States: The Federal Reserve maintained its target cash rate at 4.25% to 4.50% p.a. Headline inflation in June rose to 2.7% over the year, with core inflation (excluding food and energy) at 2.9%.
- United Kingdom: The Bank of England (BoE) left its Bank Rate unchanged at 4.25% p.a. May inflation slowed slightly to 3.4%, down from 3.5% in April.
- Eurozone: The European Central Bank (ECB) held its deposit rate at 2.0% p.a. Inflation ticked up to 2.0% in June, from 1.9% the previous month, bringing it in line with the ECB’s target.
Market Insights
- US inflation for June increased to 2.7% year on year.
- US and Europe fiscal policy becoming more supportive.
- Australian consumers continue to be cautious
US Inflation Picks Up in June
The US consumer price index (CPI) rose 0.3% month-on-month, pushing annual inflation to 2.7%. While broadly in line with expectations, this marks the highest rate since February and exceeds the Federal Reserve’s 2% target. The mixed inflation picture, coupled with ongoing tariff uncertainties, adds complexity to the Fed’s path forward. Meanwhile, the 30-year US Treasury yield has again breached the 5% mark, highlighting continued concerns about inflation and long-term debt sustainability.
Fiscal Policy in the US and Europe Turns More Supportive
In the US, the recently passed One Big Beautiful Bill Act is expected to inject fiscal stimulus later this year, supporting growth momentum. Similarly, Europe is taking a more pro-growth approach. Notably, Germany has moved to ease its fiscal constraints by amending its “debt brake” rule, allowing for the creation of a €500 million special infrastructure fund. These changes signal a broader policy pivot toward economic stimulus in both regions.
Australian consumers continue to be cautious
The recent Westpac consumer sentiment survey once again showed that the mood continues to be cautious-pessimistic in July. Responses over the survey week showed the RBA’s decision to hold interest rates steady prevented what would probably have been a solid improvement. Furthermore, the general uncertainty about the economic outlook continues to eat away at the confidence around jobs, with more consumers expecting a lift in unemployment.
*Data accurate as at 18.07.2025
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