RBA Watch: Despite its cautious tone, RBA will cut rates to 2.85%

With underlying inflation within striking distance of the midpoint of the RBA’s 2-3% target, the Board should have no qualms about cutting rates by 25bp at its meeting next Tuesday. Although the Bank will likely reiterate its concerns about limited spare capacity in the economy and the labour market, we think the incoming data flow will ultimately disappoint. All told, we’re comfortable with our below-consensus terminal rate forecast of 2.85%.