Get ready for a rate cut.
Today’s inflation data may be the final nail in the coffin for the naysayers who don’t think the Reserve Bank of Australia will cut rates at its next monetary policy meeting.
Australia’s consumer price index for the three months to June 30 is expected to rise just 0.5 per cent on the previous three months, according to a survey of 24 economists by Bloomberg News. That will mean underlying inflation of 1.9 per cent, below the Reserve Bank's target of 2-3 per cent per year, according to Matt Sherwood, strategist at fund manager Perpetual.
Sherwood says it’s not a question of whether the central bank will cut but rather by how much. He thinks one cut of 25 basis points may not be enough to pull the Australian economy out of its mire. And the stock market? Sherwood reckons it could be boosted when the cash rate is cut to a new historic low.
“The market will certainly welcome that decision,” Sherwood told Markets Spectator. “It won’t be the last move by the RBA.”
The S&P/ASX200 Index is up just 7.9 per cent this year, according to Bloomberg data. For foreign investors whose reference is the US currency, the index is down 3.6 per cent this year. But Sherwood says the Reserve Bank wants the Australian dollar to come down further and is unhappy that the currency has gained 2.6 per cent since July 12 when it was at 90.49 US cents. The central bank probably wants to see the Australian dollar below 90 cents – perhaps around 80 cents, some say – in order that industry and other sectors of the economy can be more competitive internationally.
Another rate cut may help the RBA to achieve such a goal.
Australia’s second quarter CPI data will be released to the market today at 1130 AEST.