Soft Australian inflation adds to rate cut speculation

Australia's economy could see further stimulus from a reluctant central bank after official inflation figures are below market expectations and outside the bank's target band.

Australia's consumer price index, key measure of inflation, released on Wednesday by the Australian Bureau of Statistics (ABS) increased by just 0.5 percent in the September quarter, for 1.5 percent over the year. Core inflation, which gives guidance to monetary policy, up 0.3 percent for the quarter, 2.15 percent year-on-year, below market expectations of 2.5 percent and the lower end of the Reserve Bank of Australia (RBA)'s target 2 percent to 3 percent band.

The RBA has been reluctant to go below the current record 2 percent, however global policy easing and domestic pressures from below trend growth and rate rises by Australia's banks may force their hand.

Investors are now pricing in a 52 percent chance the RBA will ease monetary policy by 25 basis points at Tuesday's monthly board meeting, according to Citi Bank's calculations.

The Australian dollar dropped almost half a U.S. cent on the news, down to 71.35 U.S. cents at 11:35 local time from 71.91 U.S. cents just before the ABS release. Endit