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Rate cut expected

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The Reserve Bank of Australia is all but certain to cut rates in May, with new CPI data weaker than expected.

According to the Australian Bureau of Statistics, CPI rose by 0.1 per cent in the March quarter of 2012.

Last week AMP chief economist Shane Oliver told Smart Property Investment's sister publciation The Adviser that anything less than 0.6 per cent would almost certainly force the Reserve Bank to cut rates in May.

“A 0.6 per cent rise would give you an annual rate of 2.1 so that would be at the low end of the target [of 2.5 per cent]. So numbers around there will be considered benign,” he said.

“Alternatively 0.7 would probably still be okay. If you get to around 0.8 it becomes a bit more debatable.

“If we do get a 0.8 per cent number then you can’t rule out a rate cut, but the chance of it occurring would be substantially less.”

The Housing Industry Association said the CPI result was weak enough to warrant a 50 basis point rate cut at next week’s Board meeting.

“The housing industry and wider Australian economy needs a further 75 basis points of interest rate cuts and there is nothing standing in the way of a 50 basis point move to get the ball rolling next Tuesday," HIA chief economist Harley Dale said.

“That would, admittedly, be a bold move for the RBA, but it would be entirely appropriate given the pulse of the Australian economy is not beating as fast as the Bank earlier expected.”

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