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ANZ analysts are expecting that the RBA is likely to cut its cash rate by 25bps on Tuesday.

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“Consumer price data for the March quarter revealed that core inflation is now trending lower despite the fall in unemployment. The conclusion is that unemployment needs to come down further just to keep inflation from falling, while the hurdle to push inflation higher is increasingly tough.”

“We think the RBA will see the need for additional stimulus in order to lift inflation to 2% by the later part of the forecast horizon and consequently expect the cash rate to be cut by 25bp on Tuesday. We don’t see the timing of the election as a constraint on RBA action. The RBA cut the cash rate in 2013 and raised it in 2007 during election campaigns (albeit under a different Governor).”

“An alternative view is that the RBA decides to be patient or (with the regulator) places more emphasis on an easing in macro-prudential measures. Regardless, the RBA post-meeting statement and subsequent Statement of Monetary Policy (SoMP) are likely to be dovish, not least because the forecasts will likely be based on market pricing of 50bp of interest rate cuts by the end of 2019. Even with these, we think the RBA will only see inflation at 2% by the end of 2020.”

“In terms of the SoMP numbers, we think the RBA will have core inflation at 1 ¾% by end of 2019, rising to 2% at the end of 2020. GDP growth for 2019 is expected to be revised down to 2 ¾%, remaining at this level subsequently.”