Low inflation figure paves way for rate cut

Low inflation figure paves way for rate cut

The Reserve Bank of Australia will be under "huge pressure" to cut the official cash rate on Tuesday following the release of the June quarter inflation figures yesterday, says Altair Asset Management.


The June quarter consumer price index figures, released by the Australian Bureau of Statistics (ABS), revealed a 0.4 per cent increase on the March quarter figures and a 1 per cent change year-on-year.

While the CPI figures are only slightly below market and the RBA's expectations, they are still well below the RBA's target band for inflation of 2-3 per cent.

The RBA noted in the minutes of its July meeting – when it kept the cash rate on hold at 1.75 per cent – that it would be watching the CPI figures closely.

Altair Asset Management market analyst Tristan K'Nell said yesterday's CPI data places the RBA under "huge pressure" to cut interest rates on Tuesday.

"There is an increasing risk that we may not be able to move anywhere near the inflation target given pressure from a lack of wage growth and oversupply of rental properties," Mr K'Nell said.

Aberdeen Asset Management's senior investment manager, Justin Tyler, said the low inflation print confirms ongoing strong competitive forces in the Australian economy, as evidenced by recent results from the retail sector.

"We believe the RBA will cut the cash rate in August, because a sustainable resurgence in price pressures won’t eventuate for some time. Looking further ahead, we also believe the trough of the current RBA rate cutting cycle is some time away," Mr Tyler said.

At the close of trade yesterday, the ASX 30-Day Interbank Cash Rate Futures – August 2016 contract was 98.380, indicating a 55 per cent chance of a 25 basis point rate cut on 2 August to 1.5 per cent.

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Low inflation figure paves way for rate cut
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