Quarterly inflation number will decide May RBA interest rate cut: Economists

An underlying quarterly inflation reading of around 0.6% tomorrow would give the RBA the green light to cut interest rates on May 1, say economists.

This is the median underlying inflation forecast by market economists, which would take the annual underlying inflation rate from 2.6% in the December quarter to 2.4% in the March quarter.

According to a survey of 17 economists by AAP, CPI is forecast to rise by 0.7% in the March quarter for an annualised rate of 2.1%, with median underlying inflation forecast at 0.6% for the quarter and 2.4% over the year.

The RBA targets an annualised average inflation reading of between 2% and 3%.

RBA governor Glenn Stevens stressed the importance of the inflation outcome in the release of April monetary policy meetings:

“If slower growth in demand could be expected to result in a more moderate inflation outcome, then a case could be made for a further easing of monetary policy.

“The Board would have the opportunity at its next meeting to review the inflation outlook based on comprehensive new data on prices, as well as information on demand and output. Members judged it prudent to evaluate those data before considering a further policy adjustment,” said Stevens.

The Commonwealth Bank is forecasting underlying inflation of 0.6% in the March quarter, with CBA chief economist Michael Blythe saying the data is “unlikely to stand in the way of a rate cut”.

Similarly, HSBC chief economist Paul Bloxham wrote in his most recent RBA Observer update: “We are sticking by our view that a trimmed mean CPI print of 0.6% or below would be enough to the see the RBA cut rates in early May, while at 0.7% it would be a close call and a 0.8% would see them on hold”. 

Borrowers will be hoping the major banks pass on the full rate cut.

It is now over a week since ANZ raised its variable mortgage rate by 0.06% to 7.42% as part of its monthly independent rate review, with the higher rate kicking in on Friday.

None of the other major banks have lifted their standard variable rates in April to date.

Westpac subsidiary brands St George and Bank of Melbourne along with mortgage lender RAMS have all cut their fixed-rate home loans, with Mortgage Choice tweeting that this could be an indication that borrowers should not expect variable rate increases.

 

 

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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