The RBA determined the cash rate will remain at 3.85% despite the overwhelming market expectation of another 0.25% cut in the July monetary policy meetings.
There is a clear divergence between market pricing and the RBA's agenda-setting, though one third of the Board voted for a cut.
Attention now shifts to the four remaining RBA decisions this year, which variable rate mortgage holders across Australia are hoping will bring several more reductions to interest rates.
However, Judo Bank chief economic adviser Warren Hogan thinks there will be at most one or two more cuts before the cash rate reaches a new normal "neutral" rate.
"This idea that we're getting a whole series [of cuts] running through the next year, taking the cash rate under three - that's certainly not something the RBA thinks will happen," he told the Savings Tip Jar podcast.
He believes a "neutral" cash rate - neither curbing nor encouraging spending - is around 3.5% and given Australia's unique exposure to high inflation, rates are unlikely to go much lower than this in the next couple of years.
"We're certainly not going back to where we were in the last 15 years," he told the podcast.
"We're in a new world and we are exposed as a community to inflation, that is, [Australia] has the highest household debt the world has ever seen and it's at variable rates, so if inflation gets away from us...we will pay a huge price."
"If we've got to take the cash rate to 6, 7% and break the economy because inflation is running out of control, it'll be devastating.
"It'll change [Australia] forever so we can't risk that."
Two more rate cuts is also what ANZ economists are predicting, with Head of Australian Economics Adam Boyton calling a rate cut in August and another subsequent one "more likely than not."
"We remain of the view that the terminal cash rate for this easing cycle will be 3.35%," he said in response to Tuesday's decision.
For mortgage holders pessimistic about this outlook though, Westpac and NAB economists are predicting a terminal cash rate of 2.85% and 3.10% respectively.
That would mean three or four more cuts by midway through next year.
August cut a lock?
Like everyone else, Mr Hogan was surprised by the decision to hold on Tuesday.
He said the positive news on inflation that filtered through in the final weeks before the July decision had led he and most other economists to conclude a cut was on the way.
"What got us caught out was the developments and settling down of the Middle East, the big fall in oil prices, and then that monthly CPI which showed pretty good progress on inflation," he told the podcast.
"I was thinking the signal from May from Governor [Michele] Bullock and the board was we're moving in the right direction and we can take the cash rate back to a neutral setting."
He said one of the biggest takeaways was that the RBA "largely ignore" the monthly CPI in favour of the more comprehensive quarterly inflation data.
The August decision will crucially take place after the June quarter price index is published, which barring a nasty upside surprise is likely to give the RBA enough justification to cut rates for the third time this year.
Addressing media after the decision on Tuesday, Ms Bullock kept repeating the decision to hold was more about timing than any major change in the outlook, and Mr Hogan interpreted her remarks as signaling an August rate cut.
"[Michele Bullock] was quite dovish in the sense that she said, 'we are in an easing cycle, we don't think that's changed, we will look at this in August'," he said.
"[She] basically said we're cutting in August unless something really drastic happens."
Picture by Sarah Kilian on Unsplash
Ready, Set, Buy!
Learn everything you need to know about buying property – from choosing the right property and home loan, to the purchasing process, tips to save money and more!
With bonus Q&A sheet and Crossword!
Harrison Astbury
Harry O'Sullivan
