In his RBA Observer Update for May, HSBC Australia chief economist Paul Bloxham said the RBA's minutes following the rate cut to 1.75 per cent spend a "considerable amount of time" on the outlook for inflation.
"The key question was the extent to which the new CPI numbers, which had surprised significantly to the downside, provided a signal about the ongoing trend in inflation and to what extent the weaker inflation print was temporary or due to measurement error," Mr Bloxham said.
Ultimately, the RBA determined the new information did not materially change the inflation outlook and elected to cut the cash rate to 1.75 per cent, he said.
"However, the degree of hesitancy revealed in the minutes suggests that the RBA is likely to be reluctant to follow up with a further cut without further clear information on the disinflationary trend," Mr Bloxham said.
"To us, this suggests that the RBA is unlikely to cut further until after the next CPI print, which is due to be published on 27 July."
HSBC's central case has another 25-basis-point cut in the cash rate to 1.5 per cent, delivered in August, he said.
"We then expect that, over time, underlying inflation may very well be a touch stronger than the RBA is forecasting, allowing the central bank to hold steady and point out that, although underlying inflation is below target, it is moving in the right direction and ahead of the forecasts," Mr Bloxham said.
"In doing this, the RBA would make use of the flexibility that is explicit in its inflation targeting regime."
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