Surprise as RBA makes December rate call

Despite it being widely anticipated that the RBA would leave the cash rate unchanged at 1.5 per cent, it has surprised the market by lifting the rate by XX basis points to YY per cent.

Australia’s top economists and market commentators had been united in predicting another hold prior to the announcement, including Leanne Pilkington, managing director at Laing+Simmons, who said the increase now is unwise. 

“Subdued housing transaction activity and price declines in some markets make an interest rate increase in the near term an unnecessary risk,” she said. 

“A strong labour market will be a key factor supporting the economy as we look to the new year.”

Economist Saul Eslake had predicted earlier that an increase would have been some way off.

“Some of [the RBA’s] recent commentary appears to indicate slightly greater near-term concerns with regard to the possible consequences of declining property prices and greater risk aversion on the part of lenders.

“Although the RBA remains optimistic on the outlook for economic growth and unemployment, it still sees inflation returning only 'gradually' to the bottom of its 2-3 per cent inflation target.”

Chief economist at REA Group, Nerida Conisbee, also called it wrong. She felt the RBA would have held rates as is – at least for the time being.

“At this stage, I believe they will hold and review when they meet up again next year,” Ms Conisbee had predicted. 

 “There are some really positive economic indicators out there at the moment. In particular, the unemployment rate is very low and this should lead to wages growth.” 

Head of corporate affairs at Mortgage Choice, Jacqueline Dearle, felt that there was nothing in the market to have warranted the lift.  

“With little change in inflation and wage growth, plus a positive outlook for the labour market, the economic backdrop suggests the Reserve Bank of Australia will hold the official cash rate at 1.5% in December,” Ms Dearle had said earlier.

[Related: RBA reveals November cash rate]