Shock RBA move on rates

In an unexpected move, the RBA decided to cut the official cash rate to a record low of 1.25 per cent.

Prior to the RBA’s meeting on Tuesday, 37 of the 38 experts and economists from the finder.com.au RBA survey believed that the cash rate would remain unchanged.

ABC Bullion chief economist Jordan Eliseo said the RBA had made it clear it was “reticent” about slashing rates further, despite “soft” economic conditions.

MyState Bank economist Christopher Schade agreed that the hurdle for a cut was high.

“While inflation remains subdued, and the outlook for economic growth over the next year couple of years slightly below trend, interest rate settings in Australia are very accommodative and remain appropriate at their current level,” Mr Schade said.

However, BIS Oxford Economics associate director of economics Richard Robinson said a rate cut would “help put downward pressure on the Australian dollar”.

The RBA’s decision today came as a surprise to Mortgage Choice CEO John Flavell, who pointed out that the central bank’s governor recently made it clear that additional cuts to the cash rate were unlikely.

“Furthermore, many of Australia’s lenders have recently increased their home loan interest rates, so the timing for this latest rate cut by the board is interesting to say the least. It now remains to be seen whether Australia’s lenders pass on today’s full rate cut to their borrowers,” Mr Flavell said.

“While I do believe that most lenders will be hesitant to pass on the full 25 basis point rate cut, whatever happens, it is important to note that home loan rates will continue to sit at historical lows.”