Australian Bond Exchange Weekly Update
11th July 2025
Key Points
- Australia: The Reserve Bank of Australia (RBA) held the cash rate steady at 3.85% p.a. Headline inflation fell to 2.1% year-on-year in May, while core inflation (which excludes volatile items) edged lower to 2.4% year-on-year.
- United States: The Federal Reserve held its target cash rate steady at 4.25%–4.50% p.a. May’s headline inflation came in at 2.4% year-on-year, while core inflation (excluding food and energy) is at 2.8% year-on-year.
- United Kingdom: The Bank of England (BoE) left its Bank Rate unchanged at 4.25% p.a. May inflation stood at 3.4%, down from 3.5% in April (both year-on-year).
- Eurozone: The European Central Bank (ECB) has maintained its deposit rate at 2.0% p.a. Inflation in June increased slightly to 2.0%, up from 1.9% in May in line with the ECB’s target (both year-on-year).
Market Insights
- RBA surprises markets by keeping cash rates unchanged
- NAB Business Confidence and Conditions surge
- US imposes 25% tariffs on Japan and South Korea
RBA Surprises Markets by Holding Rates at 3.85%
The Reserve Bank of Australia held the official cash rate at 3.85%, defying expectations of a 25-basis-point cut. The decision followed a two-day policy meeting and resulted in a rare split vote: six board members favoured the hold, while three supported a rate cut.
Governor Michele Bullock stressed that the decision reflected timing, not a shift in monetary direction, signalling the RBA’s dovish stance remains. The hold was attributed to slightly stronger-than-expected inflation and the volatility of monthly indicators. With the June quarter CPI, updated employment data, and new forecasts expected in August, a rate cut remains likely.
NAB Business Confidence and Conditions Rise Sharply
NAB Business Confidence and Conditions rose to +5.1 and +8.7 respectively in June, up from +2.2 and +0.4 in May.
The improvement in Conditions was driven by strong gains in trading (+10) and profitability (+8), with a more modest improvement in employment (+3). Sub-indices also posted solid growth, with increases in capacity utilization, forward orders, and capital expenditure.
Notably, forward orders have been recovering steadily since June 2024 and are now at their highest level (+0.2) since September 2023. Pricing and cost pressures remained stable month-over-month.
US Imposes 25% Tariffs on Japan and South Korea
In a surprise development, the US announced that exports from Japan and South Korea will face a 25% duty. The move sparked sharp criticism, with Japanese officials calling the tariffs “extremely regrettable.” Prime Minister Shigeru Ishiba urged swift negotiations, especially with Japan’s national elections scheduled for July 20.
Japan is pursuing resolution via diplomatic channels, while South Korea has vowed to intensify negotiations with the US. Seoul’s newly installed administration welcomed the extended negotiation deadline but acknowledged the difficulty in meeting original terms. Trade and national security officials from both countries have met in Washington to continue discussions.
*Data accurate as at 11.07.2025
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