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Reserve Bank makes line-ball interest rate decision

05 May 2015 Nick Bendel
RBA

The Reserve Bank of Australia has announced the result of its monthly meeting following a period of intense market speculation.

In what was probably a close decision, board members decided to reduce the official cash rate from 2.25 per cent to a new record-low setting of 2 per cent.

According to a finder.com.au survey of 34 economists and commentators, 18 had expected rates to remain on hold, while 16 had expected rates to fall.

Many thought the Reserve Bank would refrain from cutting rates now so it could have more time to assess the impact of the February rate cut.

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However, it appears the Reserve Bank decided the sluggish economy needed an immediate stimulus.

Board members probably also wanted to apply downward pressure to the Australian dollar.

BT Financial Group chief economist Chris Caton correctly predicted today’s result based on Australia’s fragile economic position.

“There was clearly another cut planned when they cut in February and not enough has happened to change that plan,” he told finder.com.au.

ME Bank’s general manager of markets, John Caelli, also predicted today’s result because of “low inflation, reasonably high unemployment and below-trend economic growth”.

Onthehouse finance editor Peter Boehm was another to forecast today’s rate cut, despite the risk it would further inflate high property prices in Sydney and Melbourne.

“Consumer and business confidence [are] still low,” Mr Boehm said. “Putting more cash in the hands of households through lower mortgage payments can help increase consumer spending and thereby increase business confidence.”

This may not be the final rate reduction of the year, with six of the 34 survey respondents forecasting that the Reserve Bank would make another cut in 2015.

[Related: Bank modelling has RBA cutting rates to 1pc]

Reserve Bank makes line-ball interest rate decision
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