"The inconclusive result of the weekend's elections will place another period of political uncertainty for Australia, which means markets will turn to the next meeting in August, where another 25 basis point (bps) cut to 1.5 percent is at the top of the agenda," said IG market strategist Bernard Aw.
The world's twelfth-largest economy held federal elections on Saturday but neither major political party secured the 76 of the 150 seats in the House of Representatives, as the lower house of parliament is known, that are needed to form a majority government. Regardless of the outcome, economists predict an extended period of uncertainty, which could weigh on confidence, efforts at budget repair as well as key pension and property reforms.
Speaking ahead of the RBA decision, Prime Minister Malcolm Turnbull said it would be a few more days before vote counting concludes, adding that he would work harder to regain the trust of citizens.
July marked the second straight month that the central bank held its fire amid a series of soft economic indicators.
Consumer price inflation, a key metric for the RBA, rose an annual 1.3 percent during the March quarter, well below the RBA's target range of 2-3 percent. During the same period, wage growth edged up 2.1 percent on-year, marking an 18-year low. Given subdued growth in labor costs and low cost pressures globally, CPI is expected to stay tepid, the RBA said on Tuesday.
"Reading between the lines, the Bank may be saying that if the CPI inflation data for the second quarter due for release on 27th July are weak, then it will cut rates to 1.5 percent in August," Capital Economics said in a note following the decision.