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Disappointing inflation figures could force the Reserve Bank of Australia to slash the official interest rate by 25 basis points at today’s monthly board meeting.
According to a RateCity analysis, there is a 50 per cent chance the RBA will choose to cut the cash rate to 1.75 per cent – the first movement in 12 months and a new historic low for the board.
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RateCity spokesperson Sally Tindall said the “disappointing” inflation figures coming from national and international economic indicators could provide enough reason for the RBA to cut the cash rate either today or in the near future.
“Australians should get set for a rate cut, if not this month then within the following two months,” Ms Tindall said.
“The RBA has held an easing bias since October. Last week’s inflation figures should be the final straw.
“Inflation is now at 1.3 per cent and core inflation at 1.55 per cent, which is undeniably well below the RBA’s own target rate, a fact they will find hard to ignore.”
Ms Tindall said the relatively high Australian dollar will also play into the RBA’s decision today.
“Despite a last-minute plunge, the relatively high dollar will also add to the RBA’s woes,” she said.
Ms Tindall added that it’s unclear if the banks will pass on the full cut should the RBA slash the cash rate.
“If the RBA does deliver a cut, the big question for mortgage holders on Tuesday won’t be around the budget, but rather whether their bank will pass this savings on,” she said.
“But with the cash rate decision set to be announced hours before [Treasurer] Scott Morrison delivers his first federal budget and employment figures still holding up, the RBA may opt to wait and see if there’s a post-budget bounce in confidence.”
[Related: Brokers react to Westpac's shock lending decision]
