-Jo Masters, ANZ
Minutes from the RBA's July policy meeting signaled that an August rate cut could be coming, but that staff would be providing updated economic forecasts before the next Statement of Monetary Policy to help assess whether further easing was necessary. Thus, officials at the Reserve Bank of Australia are awaiting further information on growth and inflation before deciding whether to adjust monetary policy. Earlier this month the RBA voted to keep its benchmark interest rate at 1.75% . That was the second consecutive month interest rates have remained on hold. Policymakers voted to cut the benchmark rate by 25 basis points to 1.75% in May, a new all-time low.
Like in May, the justification for another rate cut likely boils down to inflation. Australia's quarterly inflation report pointed to alarmingly weak price growth through the first three months of the year, compelling the nine-member Reserve Bank Board to ease monetary policy further. Market participants widely expect a further reduction to the benchmark interest rate later this year as officials look to calm down Australia's deflationary period. For these reasons, the July 27 inflation report is of critical importance. According to analysts, the second quarter inflation report will likely determine the central bank's August move.
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