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Reserve Bank of Australia likely to cut rates following weak inflation print

Xinhua, July 27, 2016 Adjust font size:

The Reserve Bank of Australia is likely to cut rates with gritted teeth at the August policy meeting after the country continued to record subdued inflation.

Australia's headline inflation rose 0.4 percent over the June quarter for an annualised 1.0 percent increase, however underlying inflation - which strips out volatile price movements - rose 0.5 percent for an annualised rate of 1.5 percent gain, the Australian Bureau of Statistics figures showed on Wednesday.

Australia's headline inflation shows it's weakest annualised reading since 1999, while underlying inflation in the first half of 2016 is at 1.25 percent annualised, well below the Reserve Bank of Australia's two to three percent target.

"While the RBA will probably cut in August, taking the cash rate to the record low 1.5 percent, we suspect that they will do so through gritted teeth," Commonwealth Bank of Australia chief economist Michael Blythe said in a note.

It's arguable that Australia's domestic economy is actually in need of any additional monetary stimulus with growth still tracking at three percent, and fears any further cuts will just add fuel to an already hot housing market that's been concerning the RBA.

"Central banks everywhere would like extra stimulus to come from lower currencies and more infrastructure spending," Blythe said.

"Both are beyond the ability of the RBA to deliver, they remain the policy maker of last resort." Endit