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RBA stuns 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 stunned the market by increasing the official cash rate to 2.25 per cent.

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

Another reason for the shock is that the Reserve Bank has only recently reduced the official cash rate – by 0.25 per cent in February and by the same amount 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.

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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.

The Reserve Bank was confronted with conflicting urges: cut rates to stimulate the sluggish economy; or lift rates to cool the Sydney and Melbourne housing markets.

It appears board members felt it was vital to cool the investor-led boom in those two markets, which has prompted some economists to raise concerns about a housing crash.

Sydney median prices jumped 17.8 per cent for houses and 9.5 per cent for units during the 2014/2015 financial year, while Melbourne prices grew 11.2 per cent for houses and 2.4 per cent for units, according to CoreLogic RP Data.

RBA stuns experts with interest rate decision
>Board members have stunned the market by increasing the official cash rate to 2.25 per cent.

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

Another reason for the shock is that the Reserve Bank has only recently reduced the official cash rate – by 0.25 per cent in February and by the same amount 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.

The Reserve Bank was confronted with conflicting urges: cut rates to stimulate the sluggish economy; or lift rates to cool the Sydney and Melbourne housing markets.

It appears board members felt it was vital to cool the investor-led boom in those two markets, which has prompted some economists to raise concerns about a housing crash.

Sydney median prices jumped 17.8 per cent for houses and 9.5 per cent for units during the 2014/2015 financial year, while Melbourne prices grew 11.2 per cent for houses and 2.4 per cent for units, according to CoreLogic RP Data.

RBA stuns experts with interest rate decision
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