The turmoil in financial markets, the stagnation in employment growth and the recent rises in bank lending rates to businesses are unlikely to have spooked the Reserve Bank of Australia by enough to prompt it to cut interest rates at the policy meeting on Tuesday 1st March. But we still believe that another year of subdued GDP growth and a fall in underlying inflation below the RBA’s 2-3% target rate will prompt the Bank to reduce interest rates later this year, from 2.0% to 1.5%.
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