Standard Charted: Australia November rate cut more likely than August

By Harry Allan

Reporting from Standard Chartered Bank (SCB) has suggested that the Reserve Bank of Australia (RBA) is more likely to cut inflation rates in November, rather than August as some analysts have suggested.

The report said “Low inflation provides scope to cut rates, without demanding it.”

Trimmed mean inflation was slightly higher than expected, but is still low enough to enable the RBA to maintain an accommodative policy stance with a dovish outlook. At 1.7 percent y/y, core inflation, while higher than expected, remains at a 17-year low.

The report said: “Our arguments from April still hold true. Inflationary pressures remain low domestically, despite upside risks as the low-base effect from low fuel prices falls away.

“Wage inflation remains at a historical low of 2.07 percent y/y (Figure 8) and we do not believe that it will pick up in the next few months.”

The RBA has recently narrowed down its focus on inflation expectations. It has expressed concern at low inflation expectations, noting after its July meeting that short-term and long-term inflation expectations had remained below average.

Market-based measures of inflation expectations have begun to stabilise which should provide further comfort to the RBA in the near term, while it adopts a wait-and-see approach.

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