Paul Bloxham

The recent lower than expected underlying inflation prints as well as the lift in mortgage rates by the major banks mean that the RBA ought to consider that it may need to cut further in order to maintain inflation on target. The underlying inflation measures - the trimmed mean and the weighted median – both rose by only 0.3% in Q3 to average 2.2% over the past year. Over the past six months the underlying inflation numbers have been below the bottom of the RBA’s target band. These numbers suggest there is now greater risk of the RBA undershooting its inflation target, with very little risk of an overshoot. At the same time, the independent tightening of financial conditions by the major banks should be expected to weigh on activity, albeit only modestly. Although the economy does appear to be on an improving growth track, the momentum has, so far, been insufficient to push the unemployment rate lower. While the RBA could afford to sit still this month to assess the impact of the higher mortgage rates on the economy, it is increasingly likely that the cash rate will need to be trimmed further to keep inflation on target, so cutting this month would help the central bank to stay ahead of the curve. I recommend a 25bp cut.

Outcome date: 
Monday 02 November 2015
Current rate: 
12 months: 
6 months: 
Surname: 
Bloxham

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