RBA leaves industry reeling with cash rate call

The RBA has left the industry dumbfounded after announcing a cut to the official cash rate of __________, bringing the official rate to a new record low of _____________.

The last time the cash rate moved was in August 2016, when it ticked down. The RBA last introduced an increase nearly seven years ago (November 2010), when the rate climbed to 4.75 per cent.

Most industry commentators, including all 35 respondents on the finder.com.au panel and 93.9 per cent of brokers responding to HashChing's RBA survey, had incorrectly predicted a "hold" verdict. A survey of the HashChing broker network revealed 93.94 per cent of brokers also thought the RBA would keep rates on hold. 

RateCity.com.au money editor Sally Tindall said that the economy is still not strong enough to justify a rate hike and not weak enough to warrant a cut in official interest rates.

“The latest economic figures show our economy is in neutral," she said. "Inflation has dropped to 1.9 per cent, just below the RBA’s target range of 2–3 per cent and unemployment remains steady at 5.6 per cent.”

She said that the RBA would have been concerned about the Australian dollar rising to US80 cents, but was surprised it was concerned enough to justify a rate cut.

Laing+Simmons MD Leanne Pilkington said that she had anticipated a hold verdict, given that the RBA has indicated its intention to cautiously manage inflation to the preferred 2–3 per cent range.

In the lead-up to today’s decision, she had felt the RBA had appeared “reticent” to reduce rates further.

LJ Hooker’s Mathew Tiller was surprised at today’s announcement, given that there had been “little discernible change” in economic indicators since last month’s RBA meeting.

Economist Saul Eslake said that he did not anticipate the RBA’s decision today.

“Economic data since the last board meeting showed more good data on employment and business conditions, offset by another quarter of very low inflation and softness in household spending, didn’t present a strong case to move in either direction,” said Mr Eslake.

Domain’s Andrew Wilson said that the RBA is clearly taking a more medium-term view of the macroeconomy, regardless of the current “insipid intransigence” of key economic performance indicators.

Equally, Mortgage Choice’s Jessica Darnbrough was surprised at today’s announcement.

“Last month the RBA made it clear that its current monetary policy setting is appropriate for the time being,” she said. 

The announcement also caught AMP’s Shane Oliver off guard.

In predicting the outcome, he had said that while growth was weaker than expected in the March quarter, recent data suggests it's back on track—thus reducing pressure to cut rates again. 

CoreLogic’s Tim Lawless said that he is surprised that the RBA cut rates today. He had predicted that it would leave the cash rate unchanged.

[Related: Turnbull warns on rate hikes, debt risks]