The substantial recent decline in year-on-year inflation by 0.5 percentage points to a 1.3 percent annual rate suggests the need for an immediate cut in the policy interest rate. A 25 basis point cut is most likely, but a 50 basis point cut would send a strong signal that the RBA will do what it can to return inflation to its target range of 2-3 percent and help stem a decline in inflation expectations. Conditions in the real economy are mixed and not as dire as some might claim, with many reasons to think there will be export-led growth in particular. But a weak housing market and uncertainty about the degree of fiscal stimulus after the election suggest that the RBA can lower rates further without worrying about overstimulating the economy. Indeed, the softness of inflation and moderated growth despite low interest rates strongly suggest that the neutral rate of interest has fallen in recent years and the policy rate should be lowered further in response.