Cash rate hits new record low

The new cash rate for December is now at an all-time low of 1.25 per cent

Few commentators anticipated this result; every participant on the finder.com.au panel predicted that the rate to hold, brokers responding to the monthly HashChing survey were largely expecting no change (91.3 per cent), while RateCity’s analysis of 24 economic indicators suggested there would be a slow-moving economy which would be unlikely to change anytime soon. 

Mortgage Choice’s John Flavell said he was surprised at the decision to cut the cash rate, a move he claimed “interesting”.

“After more than 12 months on hold, the Reserve Bank made its first rate movement for 2017 a rate cut, taking the official cash rate to the new historical low of 1.25 per cent. While today’s decision will no doubt deliver some much-needed cheer to home owners, the timing of the rate cut can at best be described as ‘interesting’,” Mr Flavell said.

“Over the last few months, the Reserve Bank has made it clear that future rate cuts are unlikely. In the minutes of its November Board meeting the Reserve Bank said leaving the monetary policy unchanged would be consistent with sustainable growth in the economy, achieving its inflation target of 2 [to] 3 per cent.”

ABC Bullion’s Jordan Eliseo was already expecting the cut, as he said earlier it would be the next rate move by the RBA - however, he did not expect one so soon.

Before the announcement, Mr Eliseo predicted: “The RBA will be happy to sit tight as we approach Christmas and monitor incoming data. With housing starting to roll over, retailers facing a tough holiday period and a stubbornly high Australian dollar, we remain confident that their next move will be a cut, but this will take time to play out,” said Mr Eliseo.

Other experts did not see a rate cut coming, expecting a hold with the potential for rate rises.

RateCity’s Sally Tindall was anticipating a hold, with a rate rise expected before the end of 2018.

“While we won’t see a rate hike in the short term, if inflation starts to grow in the first half of next year, we may see a tightening of monetary policy before 2018 is out,” said Ms Tindall.

Economist Shane Oliver also predicted a rate hike as the next move, and said he thought a rate cut was out of the question.

“Strong business conditions, strong employment and the RBA’s own expectations for stronger growth point to an eventual rate hike but low inflation, record low wages growth, the slowing housing cycle, uncertainty around consumer spending and the still too high [Australian dollar] argue for flat or even lower rates,” Mr Oliver said.

Meanwhile, the Housing Industry Association’s Shane Garrett claimed Australia needed interest rates to stay at their current level.

“General inflationary pressures are well under control – but several components of demand are below par and need a supportive interest rate backdrop,” Mr Garrett said.  

[Related: RBA holds cash rate at record low]