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RBA surprises market with cash rate call

The Reserve Bank of Australia has made its final interest rate decision of the year at its monthly board meeting.

The board surprised most observers by reducing the official cash rate to a record-low setting of 1.75 per cent, after it had been at 2 per cent since May.

All 33 economists and commentators surveyed by comparison website finder.com.au had forecast that rates would remain on hold – although five did predict a rate cut at the next board meeting in February.

At various times this year, there has been talk that the RBA might either cut rates to stimulate the economy or increase rates to cool the Sydney and Melbourne property markets.

Now that the nation’s two biggest housing markets have slowed down, it appears that board members felt they had room to give a boost to the economy.

Something else that probably influenced their decision was the fact that inflation is running at only 1.5 per cent, which is below the RBA’s target band of 2 to 3 per cent.

After today’s decision, speculation will begin about what the RBA will do at its February meeting.

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Another rate cut is unlikely given that the board reduced the official cash rate by 0.25 per cent on two other occasions this year – once in February and again in May.

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