The recent decline in inflation to 1.3%, clearly below the RBA’s 2-3% target range, looks broad-based and provides a clear impetus for the RBA to cut the policy interest rate. Even a 50 basis point cut could be justified by the magnitude of the decline in inflation and the recent uptick in the unemployment rate to 5.2%. Furthermore, the RBA should signal that it will do whatever it can to bring inflation well back into its target range and not plan to raise rates at least until inflation is at the high end of the range and forecasts suggest strong risks of it persistently rising above the target range. The re-elected government’s plans for stimulative fiscal policy could help assist offsetting weaker demand in the economy. However, it is crucial that the RBA demonstrates its strong commitment to the current target range in order to keep inflation expectations stable and real interest rates low.