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RBA shocks market with first cash rate call of 2016

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

The board shocked most observers by increasing the cash rate from a record-low setting of 2 per cent to 2.25 per cent.

All 29 economists and commentators surveyed by comparison website finder.com.au had forecast that rates would remain on hold today.

Today’s decision marks a change in course by the Reserve Bank, which had been cutting rates for more than five years, including twice last year.

The last increase in the cash rate was in November 2010, when it moved from 4.50 per cent to 4.75 per cent. It then gradually fell, until bottoming out at 2 per cent in May 2015.

However, it wouldn’t be surprising if the Reserve Bank decreased rates later this year – before today’s announcement, seven of the 29 survey respondents forecast the cash rate would fall to at least 1.75 per cent in 2016.

Board members might feel monetary stimulus is needed if a slowdown in Chinese growth affects Australia’s economy and the prospects of Australia’s trading partners.

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