RBA shocks with rate rise

In an unexpected move, the RBA has decided to raise the official interest rate for the first time since November 2010.

The RBA has now hiked the official interest rate to 1.75 per cent, up by 25 basis points from the 1.5 per cent record low.

The last time the cash rate moved was in August 2016, when it ticked down - and the last increase was in November 2010 when the rate climbed to 4.75 per cent.

Prior to the announcement, none of the surveyed experts on the finder.com.au panel predicted a rate change; however, 81 per cent of the panellists did say that they expected the next cash rate movement to be a rise.  

Mortgage Choice CEO John Flavell said that he was “not at all surprised” by the RBA’s decision, noting that further rate increases could be on the cards this year.

“Looking ahead, the current spate of positive economic data could actually encourage the Reserve Bank of Australia to deliver more than one rate increase in 2018,” Mr Flavell said.

Meanwhile, professor at Monash University Mark Crosby claimed that the RBA board’s decision would be influenced by movements in foreign market. But despite a historic 6 per cent plunge in the Dow Jones on the US Stock Exchange, Mr Crosby predicted the RBA to hold rates in February.

He did say, however, that he expected the next cash rate movement to be up.

“2018 will be watch and wait for the RBA, as they observe movements in overseas rates and ponder timing for a rate rise in Australia,” Mr Crosby said.

Others had predicted for rates to remain on hold. Head of investment strategy and chief economist at AMP Capital Shane Oliver predicted a rate hold, despite noting strength in some economic indicators.

Mr Oliver claimed that low inflation, stunted wage growth, consumer uncertainty and the high exchange rate would prompt the RBA to hold the cash rate.

“While confidence, jobs and non-mining investment are strong, inflation remains below target, wages growth remains around a record low, uncertainty is high regarding the outlook for consumer spending and the Australian dollar is too strong. As such, it is too early for the RBA to consider raising interest rates,” Mr Oliver said.

Independent property market economist Dr Andrew Wilson and CoreLogic head of research Tim Lawless also predicted a hold decision, believing that a reduction in housing market activity would also influence the central bank’s decision to keep the cash rate unchanged.

However, economist Stephen Koukoulas had said that a rate cut was warranted.

Despite also predicting the cash rate to remain at 1.5 per cent, the managing director of Market Economics said: “[The] RBA continue[s] to miss its inflation target, and despite evidence that a rate cut is needed, it is likely to remain on hold. It will cite an improving global economy as a key reason.”

“For more than two years now, inflation’s been below the bottom of their target range, so I think they need to ensure monetary policy is set towards reflating the economy, getting inflation a little bit higher.

“You then throw in a few issues like the softness in housing, which has been something of a concern.

“If the house prices in Sydney and Melbourne keep falling, there’s a potential risk to the economy there.”

[Related: RBA rate cut would be a good move, says economist]