While Wednesday’s weak inflation report was enough to see some change their tune when it comes to the outlook for Australian interest rates, Westpac chief economist Bill Evans believes it won’t be enough to persuade the RBA to cut interest rates next week.
“Until the release of the March quarter inflation report speculation of a rate cut was limited to only a few commentators and markets rated the probability of a cut at around 10%,” said Evans in a research note released Thursday afternoon.
“The question is whether this surprise result will trigger the Board to activate its current easing bias and cut the cash rate by 0.25% next Tuesday.
“Markets and media are strongly favouring a rate cut. We are sticking with our view that the Board will decide to hold rates steady.”
Evans suggests that the decision will come down to the RBA’s view on whether an on-hold policy stance will result in the bank missing its inflation and growth targets.
“Missing the target is not about moving outside the target range in the near term but staying outside the target range in the medium term,” he says.