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RBA makes cash rate call - Oct 2016

The Reserve Bank of Australia has shocked the market in delivering the decision of its monthly board meeting.

In a surprise move the RBA dropped the cash rate 25 basis points today, despite all 38 of finder.com.au’s surveyed experts and economists tipping it to keep rates on hold this time around.

Many of the experts had said it should have been a matter of “so far so good” for the RBA, adding there appeared to be increasing RBA scepticism about the overall effectiveness of further rate cuts at this time.

Prior to the shock decision, Australian Associated Press chief economist Garry Shilson-Josling had said, “if there is a problem, it’s not that interest rates are too high.”

Equally, BIS Shrapnel’s Richard Robinson said there was no need to cut rates. Unemployment is steady, he said, and there is also sufficient economic growth to keep it steady.

Mr Robinson also felt the RBA needed to let [the] housing market cool further.

Many of the experts had only predicted a rate cut later this year, or early next.

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HIA senior economist Shane Garrett felt given that economic growth is moving in the right direction, the RBA might have monitored August’s rate cut more closely before making another.

Raine & Horne executive chairman, Angus Raine, had said a rate cut would likely be before Christmas, but did not think it would happen this early.

Both Domain senior economist, Andrew Wilson, and Laing+Simmons MD, Leanne Pilkington, forecast the next cut would not be before Q2, 2017.

Mr Wilson also said the RBA might have monitored the impact of the August’s cut, as well as waited for the release of next month’s inflation data.

In making her prediction, Ms Pilkington cited recent reports about a general cooling in the Australian housing market and Sydney, in particular, ranking among the most at risk globally of a housing bubble.

“But the reality is much less dramatic,” she said, although she added that it would have been more appropriate for the RBA to have left interest rates unchanged today.

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