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Most economists expect rate cut

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Most economists expect the Reserve Bank to cut the cash rate to a fresh record low after its board meets tomorrow.

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The cash rate was last cut in May, to 1.75 per cent from 2.0 per cent following unexpectedly weak March-quarter inflation figures released in late April.

The majority of economists surveyed by AAP – 11 of 14 – expect a cut this month in keeping with the RBA’s preference to adjust its policy setting immediately after quarterly inflation figures.

Last Wednesday, the Australian Bureau of Statistics said consumer prices rose only 1.0 per cent over the year to the June quarter, as slow as this measure of inflation has been since 1998.

Of the three economists not tipping a cut this week, two expect it in November, right after the September-quarter consumer price index figures in late October.

The exception was National Australia Bank’s Tapas Strickland, who acknowledged that the decision would be a close one.

“NABs view, however, is that a rate cut is not needed,” Strickland said, adding that underlying measures of inflation released last week were a little higher than the expectations of both financial markets and the RBA.

That meant the central bank was unlikely to lower its forecasts for inflation as it did in May before the latest rate cut.

“While the outcome is likely to be a close call, there is not a compelling case – especially with non-mining GDP above trend, business conditions above average, and still reasonable employment growth outcomes,” Strickland said.

Westpac’s BIll Evans also said the decision would be a close call but he is plumping for a cut.

“In my experience, when conditions are this close the better approach is to forecast what you see to be the best policy and that is another cut,” Evans said.

Alexandra Veroude and Tony Morris, economists at Bank of America Merrill Lynch, are expecting a cut and they put the focus squarely on the labour market.

“In our view, the labour market clearly supports the case for the RBA to ease, with 18,900 full-time jobs lost so far this year and overall employment growth slowing,” they said.

The pricing of the futures market today implies a 68 per cent chance the RBA will cut the cash rate to 1.5 per cent.

-AAP

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