The RBA holds at 3.85%: what a pause in the rate cycle means for portfolio strategy
Ben Wieland · Aug 08, 2025 · Wealth Management
The Reserve Bank of Australia's decision to hold the cash rate at 3.85 per cent in July was read by many commentators as a surprise. It should not have been. The RBA has been consistent in its stated position: it will not move until the data supports a move, and the June quarter CPI figures — the clearest available read on whether the recent disinflation trend has been sustained — had not been published at the time of the decision. The hold was not indecision. It was the Board doing precisely what it said it would do.
The conditions driving the pause
Headline inflation has eased back within the RBA's 2–3 per cent target band, which is meaningful. The Board's concern, however, is not simply whether inflation is within the band today — it is whether it will remain there. Several conditions are creating uncertainty on that question.
The labour market, which has been one of the more resilient features of the Australian economy through this rate cycle, is showing early signs of softening. Business confidence has declined modestly. Consumer spending — particularly among mortgage-holding households carrying variable rate debt — remains subdued. These are conditions consistent with an economy that has absorbed the rate increases of 2022 and 2023 and remains short of its prior momentum.
The RBA's position is that easing prematurely, before the inflation outlook has been confirmed, risks undoing the progress made. That is a defensible position, and it is the one the Board has consistently maintained.
What a prolonged hold means in practice
For clients with variable rate debt — mortgages, business finance facilities, investment loans — the hold extends the period of elevated carrying costs. Cash flow management in this environment rewards precision: knowing the exact rate applying to each facility, understanding the refinancing options available, and maintaining a liquidity buffer that absorbs rate movements without forcing structural changes to the portfolio.
For investors, the current rate environment has a more nuanced effect. Higher rates have compressed valuations in rate-sensitive asset classes — listed property and long-duration fixed income in particular — while supporting returns in cash and short-duration instruments. A portfolio constructed with genuine asset class diversification has navigated this period differently from one concentrated in a single asset class, which is precisely the point of the construction discipline we apply.
The rate cut that may follow
The June quarter CPI, released on 30 July, placed underlying inflation inside the target band, and markets now expect a reduction at the August meeting. If that cut arrives, it will reduce carrying costs on variable debt, provide modest support to asset valuations in rate-sensitive sectors, and potentially shift the relative attractiveness of cash versus growth assets.
We are not in the business of positioning portfolios around rate predictions — the history of rate forecasting is humbling enough to discourage that approach. We construct the portfolios we manage with the full range of plausible outcomes in view, including a rate environment that remains higher for longer than current consensus expects.
If you would like to review how your current portfolio and debt position is structured relative to the rate environment, we welcome the conversation.
Ben Wieland
Partner, Wealth Manager
1300 102 542 | 0423 710 820
ben@egu.au
This is general advice. It does not take account of your objectives, financial situation, or needs, and is not a substitute for advice that does. Before acting on anything in it, consider whether it suits your circumstances, and consider the relevant Product Disclosure Statement.