The Reserve Bank of Australia (RBA) held its latest meeting today, deciding to leave the RBA interest rate at 3.85%.
Most economists had been expected a rate cut, but the RBA surprised by being more cautious than expected.
Why didn’t the RBA cut the interest rate?
The RBA takes in a lot of different information and considers various factors about what to do with interest rates.
Australia’s central bank noted that in the March 2025 quarter, the headline inflation was in the midpoint of its target range of between 2% to 3%, which was helped by temporary cost of living relief. The trimmed mean inflation was 2.9%.
In other words, significant progress has been made on reducing inflation, but it has only recently reached the top end of its target range.
The RBA’s base forecast is that inflation will moderate to the midpoint of the 2% to 3% range and the cash rate will follow a “gradual easing path”. But, the RBA did note that recent inflation has been “slightly stronger than expected” at the margin.
The RBA also said uncertainty in the world economy remains elevated and private domestic demand appears to have been “recovering gradually” and that there has been an easing in some measures of financial stress. Labour market conditions also reportedly remain tight.
In summary, the RBA judged it could “wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis”.
What that means for ASX shares
The RBA still seems intent on reducing the interest rate in the coming months, just not this month.
I’m not surprised the ASX 200 (ASX: XJO) has fallen 0.2% since the decision – lower rates help asset prices and higher rates are a headwind. But it seems the rate cut investors wanted is likely to come next month, so it’s not too much of a negative, as long as this doesn’t signal there will be fewer cuts overall by the RBA.
There are still lots of excellent ASX dividend shares I’d want to buy in the current economic environment. I think this is a good time to look at dividend stocks such as Charter Hall Long WALE REIT (ASX: CLW).
