RBA surprises market with first cash rate call of 2016

The board surprised most observers by reducing the cash rate to a record-low setting of 1.75 per cent, after it had been left at its previous record-low mark of 2 per cent since May 2015.

All 29 economists and commentators surveyed by comparison website finder.com.au had forecast that rates would remain on hold today.

However, seven of the respondents thought a cut would happen sometime this year – including AMP Capital chief economist Shane Oliver.

“I think that given the emerging softening in the housing cycle, the ongoing mining downturn and renewed global market turmoil that the risks to growth are on the downside, and given very low inflation the RBA should ease again,” he said ahead of today’s decision.

The big question is when the Reserve Bank will make its next move on rates, and whether it will be up or down.

Another rate cut seems unlikely given the cash rate is already at a record-low level and there are no longer fears of the Sydney housing market overheating.

However, the board might decide monetary stimulus is needed if a slowdown in Chinese growth affects Australia’s economy and the prospects of Australia’s trading partners.