A rate cut by the Reserve Bank of Australia in May is still on the table despite the current inflation rate, says Colonial First State Global Asset Management (CFSGAM).
In an economic research update titled Australian Inflation: Peaceful easy feeling, CFSGAM said the current inflation rate, although moderate, is well below the RBA’s 2 to 3 per cent target range.
The headline Consumer Price Index (CPI) rose by 0.2 per cent in the first quarter of 2015, bringing headline inflation down to 1.3 per cent from 1.7 per cent at the end of 2014, the report said.
“For the Reserve Bank of Australia, the Q1 15 CPI data should provide no barrier to a further easing in monetary policy,” the report said.
According to CFSGAM, another 25-basis-point policy easing at the 5 May RBA board meeting is expected, which will take the cash rate to 2.0 per cent.
“Markets currently have around 12 basis points of easing priced in for this meeting, ie. a 50 per cent chance of a cut.
“For the remainder of 2015, markets are now expecting a low in the cash rate of around 1.85 per cent,” said CFSGAM.
CFSGAM added that a cut is likely – in line with recent comments from the RBA governor that it “has to be on the table”.