The rate cut may have been in response to a drop in core inflation to well below the central bank’s 2% to 3% target band as a result of falling oil prices and aggressive retailer discounting.
“Inflation has been quite low for some time and recent data were unexpectedly low,” RBA governor Glenn Stevens said in a statement. “While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labor costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.”
Looking ahead, most economists anticipate a second cut before the end of the year, with the June quarter inflation figure, which comes out in August, providing further guidance on the RBA’s path.
“A failure today to address the shocking CPI numbers risked falling behind the curve and allowing that disinflationary force to build,” Jamieson Coote Bonds’ Charlie Jamieson told SMH. “We fully expect a follow-up cut over next three months; the RBA rarely tweaks interest rate policy in isolation, so expect more to come.”
CurrencyShares Australian Dollar Trust