The board has decided to lift the cash rate from its record low of 1.50 per cent, by 25 basis points to take it to 1.75 per cent.
Until now, the cash rate had remained unchanged for a record-breaking 18 consecutive months.
The decision caught most pundits off guard, as it had been widely predicted that the RBA would not move the cash rate this month.
Speaking last week, the assistant governor for financial markets at the RBA, Christopher Kent, said that the decision is a product of unemployment and inflation, both of which had made gradual improvements.
“So, the fact that there is progress suggests that the next move in interest rates by us is likely to be up, not down, but the fact that it is gradual means that there is no particular rush to do that,” Mr Kent told an industry briefing last week.
However, of the 32 surveyed respondents on the finder.com.au panel, 31 (97 per cent) had incorrectly predicted the cash rate to remain unchanged.
Only former Domain senior economist Andrew Wilson had correctly predicted the increase.
“Latest data remains neutral for the current setting environment, with ABS March quarter CPI still clearly underwhelming,” Mr Wilson said.
“Predictable end to APRA market manipulation reflects generally moderated housing market activity, so RBA can concentrate on main macro game.”
AMP Capital chief economist Shane Oliver said that there were many reasons why the RBA might have kept the cash rate as is for another month.
“Strong business conditions and employment, rising non-mining investment, strong global growth and the RBA’s own forecasts argue against a cut,” Mr Oliver said.
“But low inflation and wages growth, risks around the outlook for consumer spending, the slowing Sydney and Melbourne property markets and tightening bank lending standards argue against a hike.”
Mortgage Choice spokesperson Jacqueline Dearle felt the RBA would have been better off leaving the cash rate as is until the economy can “better absorb” the impact of an increase and until inflation is at, or near, 2 per cent.
Corinna Economic Advisory economist Saul Eslake had also incorrectly predicted a no-change verdict.
“None of the data released since the last meeting, nor anything else that has occurred since then, will have altered the RBA’s assessment of the economic outlook sufficiently to prompt a change in its view that current monetary policy settings are appropriate for the time being.”
REA Group chief economist Nerida Conisbee felt that while momentum seems to be slowly building in the Australian economy, it still isn’t at a point where interest rates could start to increase.
Both HIA Group senior economist Shane Garrett and LJ Hooker head of research Mathew Tiller had incorrectly anticipated that the RBA would keep the cash rate at its current level.
Mr Garrett felt that there are no real inflationary pressures, while Mr Tiller had said that inflation and wages growth remain “too soft” to see any movement in the cash rate.
Laing+Simmons managing director Leanne Pilkington was also surprised by the result.
She said that the fundamentals have remained relatively static and that the RBA had had “no impetus” to adjust interest rates at this time.