RBA announces ‘shock’ rate decision

The Reserve Bank of Australia (RBA) has held the official cash rate at 1.5 per cent, marking the 30th consecutive hold verdict following its last adjustment in August 2016.  

The central bank’s decision has surprised most industry pundits, with comparison website Finder.com.au’s RBA Cash Rate Survey reporting that of the 35 market analysts and economists surveyed, 32 (91 per cent) predicted a cut.

The shift in expectations followed RBA governor Philip Lowe’s concession earlier this month that the board would “consider the case” for a rate cut in June, in light of flat inflation growth, subdued wage growth and weaker than expected labour market conditions.

Reacting to the news, Graham Cooke, insights manager at Finder, said: “It’s shocking to see so many outlets and experts get a prediction like this wrong.

“Not only did almost all (91 per cent) of our experts predict a cut today, most (59 per cent) anticipate two rate cuts in 2019, and nearly a quarter (22 per cent) are calling for three rate cuts this year.

“Surprised is an understatement.”

Among those that predicted a cut was AMP Capital chief economist Shane Oliver, who observed: "Growth has slowed, inflation has slowed well below target, unemployment looks like it is now starting to rise when it needs to be falling to get inflation back up and the RBA has recognised all of this and moved to an easing bias."

However, some analysts correctly predicted the RBA’s decision, noting that the central bank would hold off from making an adjustment until the domestic and global economic outlook was clearer.

Mark Brimble, professor in the Department of Accounting, Finance and Economics at Griffith University observed: “Bias is clearly to the easing, however the RBA may choose to wait for the new financial year for a range of reasons including the finalisation of the budget bills, and how geo-political issues play out on the global stage and markets.”

CoreLogic’s head of research, Tim Lawless, added: “The RBA’s decision to keep rates on hold has taken the market by surprise; however, the decision to keep the cash rate at an already record low provides the bank with an opportunity to digest the March quarter national accounts and observe the housing market and credit flows for another month.”

Pointing to the latest home price data from CoreLogic, Mr Lawless added that there are “already signs the housing market is finding a floor”.

Mr Lawless also stated that an expectation of cut to the cash rate in the coming months, along with APRA’s proposed changes to mortgage serviceability guidelines, and political stability from the outcome of the federal election, could trigger a rebound in the housing market.

“The latest rate cuts together with lower serviceability assessments for borrowers and greater confidence following the federal election should help to support an earlier than expected trough in housing values,” he said.

However, Mr Lawless expects continued income and expense scrutiny on prospective borrowers and economic conditions to offset the stimulus.

“[We] aren’t expecting a rapid reversal in house price declines due to ongoing tight credit policies and, more broadly, economic uncertainty as global trade tensions escalate,” he added.

 [Related: 91% of pundits expecting RBA cut]