The Reserve Bank of Australia's (RBA) decision came down to the wire at its monetary policy meeting Tuesday, with the result of an interest rate cut despite policymakers' concerns over a too-strong Australian dollar and home price gains.
"The RBA can't have its cake and eat it," Capital Economics said in a note last week. "The only way to ensure that the Australian dollar weakens, which would support the real economy, is to reduce interest rates further, but this would boost the already hot housing market,"
Public expectation was that the RBA will cut and maintain an easing bias on the back of lowering outlooks on growth and this is in fact what has taken place.
Other analysts, including those at Goldman Sachs, Moody's Analytics and AMP Capital, forecasted an interest rate cut of 25 basis-points to a record low of 2 percent in what would be the central bank's first move since February. Spread better IG noted that the swaps market is now pricing a 62 percent chance of a cut.
The case for the RBA action remains strong, noted Shane Oliver, head of investment strategy and chief economist at AMP Capital. He cited a weak outlook for business investment and the risk of the Australian dollar rebounding further, but he also cautions that a third straight of month of inaction wouldn't be surprising either.