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RBA interest rate decision stuns market

The Reserve Bank of Australia has delivered the result of its monthly board meeting.

The board has surprised the market by increasing the cash rate to 2.25 per cent.

All 31 commentators surveyed by comparison website finder.com.au had expected the cash rate to remain at a record-low 2 per cent, where it has been since May.

Many of the experts felt that the Reserve Bank wanted more time to assess the impact of its 0.25 per cent cut in February and its 0.25 per cent cut in May.

Board members had been facing two conflicting pressures: to cut rates to stimulate the sluggish economy or to lift rates to cool the Sydney and Melbourne housing markets.

They may have felt compelled to act by recent house price statistics from Domain Group which found that Sydney prices grew 22.9 per cent during the year to June and Melbourne prices rose 10.3 per cent.

Although the consensus view was that rates would remain on hold this month, 19 of the 31 respondents had forecast that the next move in rates would be up.

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Two thought it would happen in the second half of 2015, five thought it would happen in the first half of 2016 and 12 thought it would happen in the second half of 2015.

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