RBA to cut rates

The Reserve Bank of Australia has moved the official cash rate every November for the past six years and it seems this year is not going to be any different.
The Reserve Bank should and will cut on Melbourne Cup Day, despite the recent benign inflation result.

Australian inflation in the September quarter was a bit higher than expected, not helped by sharp rise in prices for food due to bad weather, utilities due to the carbon price and health on the back of health insurance rebate changes.

Underlying inflation also rose more than expected but is running in line with the RBA’s forecast of 2.5 per cent for this year.

While the upside surprise in inflation has made a rate cut next month a more marginal call, I think the RBA should and will cut on Melbourne Cup Day.
Inflation is still benign and carbon pricing and other Government changes have played a big role in pushing it higher.

What’s more, with growth likely to slow to around 2.5 per cent inflation is likely to remain benign and possibly fall. If the RBA wants to be confident, non-mining demand will pick up enough to offset the slowdown in the mining sector then interest rates will need to be cut further


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