Economists shocked after Reserve Bank of Australia subverts widespread expectations and holds cash rate at 3.85 per cent

Sky News AU

7 days ago

Many leading economists were shocked after the Reserve Bank of Australia subverted widespread expectations of a rate cut and held the cash rate at 3.85 per cent.
The central bank decided to hold rates despite money markets pricing in a 94 per cent chance of a rate cut in the hours up to the decision.
RBA Governor Michele Bullock said the central bank awaited further data on inflation to confirm it is settling amid global economic uncertainty.
'The board decided to wait a few weeks to confirm that we're still on track to meet our inflation and employment objectives," she told reporters after the RBA decision.
She also confirmed the decision was 'more about timing' and 'making sure' underlying inflation continued to settle with new quarterly data due before the next decision.
InTouch Capital Markets' Sean Callow said the decision came as a shock and considered the financial ramifications this would have amid widespread expectations of a cut.
'When I saw it, I had to do a double take,' Mr Callow said on Business Now.
'I was thinking particularly of the interest rate market - how much money just got lost – but also disappointment from the public who had been guided by so many forecasters.'
RaboResearch senior macro strategist Ben Picton echoed Mr Callow's sentiment during a separate appearance on Business Now.
'I was shocked as most others were,' Mr Picton said.
'Almost every economist surveyed by the various news outlets out there were expecting a cut today.
'I was in that camp and I think it's fair to that the RBA wrong-footed the market big time.'
Every major bank was forecasting the RBA to deliver a 0.25 per cent rate cut on Tuesday.
AMP's chief economist Shane Oliver also acknowledged his forecast of a July cut was wrong but was optimistic about future rate cuts.
'We continue to see further rate cuts as we see economic growth picking up more slowly than the RBA is forecasting, underlying inflation is likely to be confirmed around the 2.5 per cent target and monetary policy remains tight,' Mr Oliver said.
Meanwhile, Finder's head of consumer research Graham Cooke said the decision would comes as a blow to many home owners banking on further financial relief.
'There is still a portion of homeowners who are in severe mortgage stress doing it tough,' Mr Cooke said.
'It's soul-crushing when you think relief is coming only to find that you need to wait another couple months.'
Tuesday's decision follows the RBA lowering the cash rate 25 basis points in both May and February.
The RBA held the cash rate at 4.35 per cent for almost a year and a half to stamp out post-pandemic inflation.