While the second-quarter inflation figures were somewhat mixed, we still expect that the most likely outcome at the Reserve Bank of Australia’s policy meeting on Tuesday 2nd August is an interest rate cut from 1.75% to 1.50%. The Statement on Monetary Policy, which will be published on Friday 5th August, will probably show that the RBA has revised up its GDP growth forecasts but that it still expects underlying inflation to be below the 2-3% target until mid-2018. We expect underlying inflation to remain below 2.0% until 2019, which may prompt interest rates to fall further still, perhaps to 1.0% by next year.
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