RBA slashes inflation forecasts, paving way for another rate cut

SpacePete · May 6, 2016

RBA slashes inflation forecasts, paving way for another rate cut

The Reserve Bank of Australia has just released its quarterly statement on monetary policy (SOMP), including its forecasts for inflation and GDP growth in the years ahead.

...Following the release of Australia's March quarter CPI report last week something that revealed core inflation rose by just 1.55% over the past year, the lowest level on record the bank has taken an axe to its core inflation forecasts all the way out to June 2018.

Underlying inflation is now seen at 1.5% by the end of the current quarter, down from 2% in February, indicating that the bank does not expect a near-term rebound in inflationary pressures.

...Crucially, the final sentence to the overview in the SOMP says "the Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time".

In the wake of the SOMP's release, the Australian dollar has tumbled, dropping to as low as .7412. It is now trading at the lowest level since March 9, and has now fallen 5.5% since April 21.

Cash rate futures have also strengthened, indicating a greater probability that a further interest rate cut is coming. Based on current pricing, it's seen as a 73% probability that interest rates will be reduced to 1.50% when the RBA meets on August 2.

http://www.businessinsider.com.au/here-are-the-rba-revised-inflation-and-gdp-forecasts-somp-2016-5
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RBA slashes inflation forecasts, paving way for another rate cut

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RBA slashes inflation forecasts, paving way for another rate cut

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