Deflation data won’t move RBA, finder survey shows

Adam Smith 29 April 2016

RBA cash rate march 2016The first period of deflation in seven years hasn’t changed experts’ tune on the course of the Reserve Bank.

Inflation figures released this week by the Australian Bureau of Statistics show the consumer price index (CPI) contracted for the first time in seven years. While the data could put added pressure on the Reserve Bank to cut the official cash rate, 96% of experts surveyed by don’t expect that cut to come when the RBA board meets on Tuesday 3 May.

Twenty-seven of the 28 experts polled in the Reserve Bank Survey say they believe a robust labour market and the imminent Federal Budget will stay the RBA’s hand. One economist, Savanth Sebastian of CommSec, has predicted a cut as a result of the ABS inflation data.

While experts expect the Reserve Bank to hold fire at its May meeting, 55% believe a rate cut will come this year, with the most popular predictions for a reduction being August or November. Of the 45% who predicted no movement for the remainder of 2016, all of them agreed the Bank’s next move was likely to be up.

Regardless of the RBA’s course of action, its likely that the latest change could kick off another round of out-of-cycle rate hikes. We'll cover the official rate change as soon as it's announced next Tuesday.

For more on the RBA’s historic decisions, head here.

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