The Reserve Bank of Australia has cut the official cash rate to a historic low of two per cent.
The decision by the RBA to cut the interest rates is at odds with the consensus of the RBA ‘Shadow Board’.
The ANU Centre for Applied Macroeconomics Analysis Shadow Board attached 67 per cent probability to 2.25 per cent being the “appropriate policy setting”.
“Economic data is once again painting a motley picture of the Australian economy,” said the Shadow Board.
“Slight improvements in the labour market, rising property prices, and a headline inflation rate near the centre of the official target band stand opposed weakening consumer sentiment and a deterioration of the international economy.”
At the RBA's April meeting (in which it resolved to keep the cash rate on hold at 2.25 per cent), governor Glenn Stevens said it was appropriate to hold “for the time being”.
“Further easing of policy may be appropriate over the period ahead in order to foster sustainable growth in demand and inflation consistent with the target,” Mr Stevens said.
AMP chief economist Shane Oliver correctly predicted that the RBA would cut the cash rate to two per cent.
“Growth is sub par, the business investment outlook is weak, the Australian dollar is still too high and inflation is benign,” Mr Oliver said.
“But it’s a very close call. My view of a rate cut in May is a close call. If [there is] no move in May then expect another cut in the months ahead.”