Cash rate contrition

Citigroup has backflipped on its prediction that Australia's official cash rate won't be cut again this year, citing below trend Chinese growth.

Citigroup’s Australian economists have finally caved.

Paul Brennan and Josh Williamson, after weeks of maintaining a line the Reserve Bank of Australia would not cut its benchmark interest rate again this year, now say the cash rate will be trimmed to yet another record low, of 2.5%, next month.

“Despite evidence of a partial decoupling of Australia’s economic growth from China, the domestic economy continues to grow below trend,” says Brennan. “More Reserve Bank support is needed.”

Last week’s unemployment rate of 5.7%, the highest since 2009 will probably result in less inflationary pressure, says Citigroup. That will make it easier for the central bank to trim the cash rate if the latest consumer price inflation figure, due later this month, comes in below or within the Reserve Bank's stated annual inflation goal of 2% to 3%.

Earlier this month the Reserve Bank said: “The inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand.”

At 1100 AEST the S&P/ASX200 Index added 6.515, or 0.1%, to 4980.40, after rising as high as 4993.50 earlier. The Australian dollar was at US cents 90.61, up from US cents 90.49 on Friday, according to Bloomberg data.

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