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RBA rate announcement

The Reserve Bank of Australia has made its cash rate decision, following a month of intense speculation.

The board surprised many market analysts by reducing the official cash rate to a record low of 2.00 per cent, just two months after cutting it from 2.50 per cent to 2.25 per cent.

According to a finder.com.au survey of 42 economists and commentators, only 10 had forecast a rate cut while the other 32 had forecast that the Reserve Bank would leave rates on hold.

AMP Capital chief economist Shane Oliver predicted today’s rate cut on the basis that “growth remains sub-par, the investment outlook is poor, confidence is subdued and the Australian dollar is too high”.

Nathan McMullen, head of product and digital at RAMS, attributed today’s cut to below-trend growth and weak domestic demand.

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“The economy is likely to be operating with spare capacity for some time yet given unemployment has moved higher,” he told finder.com.au.

“A lower exchange rate is likely to be needed to achieve balanced growth whilst inflation remains within tolerance.”

Although the Reserve Bank surprised most experts with today’s decision, 40 of the 42 survey respondents had expected a rate cut no later than September.

Speculation will now begin about whether the board will make a third move on rates in 2015.

Moody's Analytics economist Katrina Ell forecast ahead of today’s meeting that rates would fall to 1.75 per cent during the year.

 

RBA rate announcement
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