The Reserve Bank of Australia board decided on Tuesday to slash the official cash rate from 2% to a new record low of 1.75%. Some banks responded quickly, with the National Australia Bank immediately announcing a 0.25 points reduction to its variable interest rate.
The move surprised most forecasters, with a finder.com.au survey of 28 economists and commentators revealing that all but one had expected the official rate to remain on hold.
CommSec’s Savanth Sebastian correctly predicted the decision based on the recent low inflation rate of 1.3%. “When it comes to inflation, central banks across that globe are facing the same concerns,” Sebastian said. “The bottom line is that underlying inflation is undershooting the 2% to 3% target band, and that suggests little risk in cutting rates a little further.”
The other 27 “experts” surveyed cited a robust labour market, a recovering Australian dollar and an imminent Federal Budget among the reasons behind why the cash rate would stay put.