Rate cut tomorrow 'beyond doubt'

by Adam Smith30 Apr 2012

An economist has claimed tepid inflation means a May rate cut is a foregone conclusion.

As tomorrow's RBA meeting looms, Westpac chief economist Bill Evans has said the March quarter CPI figures released last week make it a certainty "beyond doubt" that the Reserve Bank will cut the official cash rate. Evans said housing has shown particular weakness in the inflation data, and has helped build the case for a cut.

"The rare negative read on house purchase emphasises the parlous state of the housing construction sector and certainly that sector's need for some interest rate relief," Evans said.

Evans said that the bank expects 50bps of cuts in the near term, but has dismissed the idea that the bank will cut 50bps in May.

"We would tend to dismiss that prospect given the general cautious approach of the RBA. While we would not argue with such a decision, given that our view was that the case had already been made for a cut in February of this year, we expect that the RBA will prefer to assess the impact of the rate cut on financial conditions and confidence before it moves the full 50bps," he said.

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