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RBA surprises experts with interest rate decision

The Reserve Bank of Australia has announced the result of its monthly board meeting amid a climate of rising house prices and sluggish growth.

Board members have surprised the market by reducing the official cash rate to a record low of 1.75 per cent.

All 33 economists and commentators surveyed by comparison website finder.com.au had forecast that rates would remain at 2 per cent.

Although 12 respondents forecast that rates would fall further in 2015, the feeling was that today would’ve been too soon given that a 0.25 per cent cut was made in February and a 0.25 per cent cut was made in May.

HSBC chief economist Paul Bloxham, speaking ahead of today’s announcement, told finder.com.au that the impact of those two rate cuts was still unclear.

Commonwealth Bank chief economist Michael Blythe felt the board would refrain from cutting rates until it could assess incoming data, such as inflation statistics due in late July.

Board members were confronted with conflicting urges: cut rates to stimulate the sluggish economy; or lift rates to cool the Sydney and Melbourne housing markets.

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The low inflation rate gave the Reserve Bank scope to cut – the Consumer Price Index was only 1.3 per cent for the year to March, well below the board’s target of 2-3 per cent.

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