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Reserve Bank surprises market with cash rate call

The Reserve Bank of Australia has delivered its decision from its monthly board meeting.

Board members decided to slash the official cash rate from 2 per cent to a new record low of 1.75 per cent.

According to a finder.com.au survey of 28 economists and commentators, all but one had expected rates to remain on hold.

CommSec’s Savanth Sebastian correctly predicted today’s decision based on the recent low inflation of 1.3 per cent.

“When it comes to inflation, central banks across that globe are facing the same concerns,” Mr Sebastian said.

“The bottom line is that underlying inflation is undershooting the 2 to 3 per cent target band, and that suggests little risk in cutting rates a little further.”

The other 27 experts surveyed cited a robust labour market, a recovering Australian dollar and an imminent federal budget among the reasons behind why the cash rate would stay put.

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Shane Garrett, senior economist for the Housing Industry Association, said the current balance between inflation, growth and exchange rate conditions did “not warrant an immediate interest rate reduction”.

Bank of Sydney’s Steven Pambris said any move on rates by the RBA would “lack prudence”, given that the budget was set to be unveiled on Tuesday night.

As for the prospects of a rate movement beyond May, 55 per cent of the 22 experts who answered this question believe a cut is on the cards in 2016, while 45 per cent expect no movement until next year. Only three experts predicted a rate rise this year.

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