RBA makes highly anticipated call on interest rates

The Reserve Bank of Australia has announced the result of its first monthly board meeting since the big four banks raised their mortgage rates.

The board decided to leave the official cash rate at 2 per cent as most analysts had predicted.

While all four major banks raised their owner-occupier rates last month, 24 of the 30 economists and commentators surveyed by finder.com.au had expected the cash rate to remain on hold. The other six forecast a rate cut.

Many people have assumed that the next move in the cash rate would have to be up given that it is now at a record-low setting following 0.25 per cent reductions in February and May.

However, it now seems increasingly possible that the cash rate could fall even lower.

The survey found that 13 of the 30 respondents expect further cuts, with eight predicting a low of 1.75 per cent and five predicting a low of 1.5 per cent.

Another rate cut would also provide a boost to Australia’s sluggish economy.

One reason some analysts thought another rate cut was unlikely was that it would exacerbate housing booms in Sydney and Melbourne.

However, the RBA could now have room to move, with Sydney’s boom apparently at an end, and a significant slowdown forecast for Melbourne.

The outlook on inflation is also supportive – the inflation rate is running at 1.5 per cent, which is well below the RBA’s target band of 2-3 per cent.

Domain Group senior economist Andrew Wilson told finder.com.au reducing the cash rate would offset the tightening effect of last month’s mortgage rate rises and would help spur Christmas retail activity.

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