Low inflation 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 last week, according to an Australian equities manager.

The June quarter consumer price index figures, released by the Australian Bureau of Statistics, 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 central bank’s target band for inflation of 2 to 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 the 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,” he 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,” he said.

“Looking further ahead, we also believe the trough of the current RBA rate cutting cycle is some time away.”

[Related: Low inflation could be a boon, says HSBC]

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