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Rates may drop even further

By Staff Reporter
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Numerous experts have suggested rates may be cut in May, based on weak indicators and the patchy response to current cuts so far.

In his Weekly Economic and Market Update, AMP Capital’s chief economist, Shane Oliver, noted that it would be prudent for the RBA to drop the interest rate.

“The bottom line is that inflation is not a problem in Australia and given the patchy and tentative nature of the response to interest rate cuts so far and the impending mining investment slowdown, the RBA should act on its easing bias and cut interest rates another 0.25 per cent,” Mr Oliver noted.

However, he said that while this could occur in May, “the June meeting may be more likely”.

RP Data’s senior research analyst, Cameron Kusher, noted on the RP Data blog that annual inflation is currently running at 1.2 per cent, “which is well below the Reserve Bank’s target range of two to three per cent”.

“Overall, the data indicate that inflation in the Australian economy remains at low levels and that the calls for interest rate hikes will likely now dissipate,” Mr Kusher stated. 

“In fact, with home value growth slowing in April, commodity prices falling and mining investment expecting to peak throughout 2013, there may be a need for further interest rate cuts this year.”

Mr Oliver agreed with this assessment, noting that “In Australia, lower than expected inflation in the March quarter, coming off the back of a softer tone in recent global and Australian economic data, has left the door wide open for another RBA interest rate cut to help shore up the economy as the mining investment boom slows.”

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