The Reserve Bank of Australia has made the decision to cut the cash rate following its August board meeting, reducing it by 25 basis points to 1.5 per cent.
The cash rate has held steady since the May board meeting, but the ASX futures market gave a 68 per cent chance of a cut as of 1 August 2016.
The decision to cut follows weak inflation data, which year-on-year showed inflation of only 1 per cent, below the RBA’s target band of 2-3 per cent, and – as noted by the RBA shadow board of the Australian National University’s Centre for Applied Macroeconomic Analysis (CAMA) – this represents the lowest inflation figure since 1999.
Also, the RBA’s trimmed mean CPI rose 1.7 per cent, which the CAMA shadow board noted was still below the target despite being slightly more than expected.
AMP Capital chief economist Shane Oliver commented that while the low inflation figures did not guarantee a rate cut, given that other economic data has been positive of late, the RBA’s decision would prevent inflation expectations from becoming “entrenched” below 2 per cent.
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