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Stubborn rental inflation won’t prevent RBA rate cuts

In recent months, there have been growing concerns that the rapid rise in rental inflation will force the Reserve Bank of Australia to keep rates higher for longer. To be sure, leading indicators suggest that rental inflation will continue to accelerate in the near term, sustaining upward pressure on services inflation. However, if goods inflation plunges as sharply as we expect, the RBA’s 2-3% target will still be in sight by Q2 itself. Accordingly, we’re sticking with our forecast that the Bank will start to cut rates by May, sooner than most anticipate.

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