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RBA announces cash rate decision

The Reserve Bank of Australia has announced the result of its first monthly board meeting since the big four banks raised their mortgage rates.

The board has caused a surprise by reducing the cash rate from 2 per cent to a new record-low setting of 1.75 per cent.

After all four major banks raised their owner-occupier rates last month, some felt the RBA would reduce the cash rate to offset the tightening effect of those mortgage rate rises.

However, only six of the 30 economists and commentators surveyed by finder.com.au predicted today’s rate cut, with the other 24 expecting rates to remain on hold.

Domain Group senior economist Andrew Wilson, who correctly forecast the rate cut, said it would help spur Christmas retail activity.

He also noted that the RBA had room to move given that the Sydney housing boom appears to have ended.

CommSec economist Savanth Sebastian, who also called today’s rate cut, said the RBA wanted to boost Australia’s sluggish economy.

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"Banks raising rates outside of RBA policy is a quasi-tightening on the economy. Activity levels have been improving but still patchy. A rate cut before Christmas will help to spur activity,” he told finder.com.au.

Soft inflation data gave the RBA room to make today’s cut: inflation is running at 1.5 per cent, well below the target band of 2-3 per cent.

This is the third rate cut of the year, following 0.25 per cent reductions in February and May.

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