Author: Dr Shane Oliver, Head of Investment Strategy and Chief Economist, published on 29th April 2019
The attached note looks at the issues around further fall inflation in Australia. The key points are as follows:
- Surprisingly low inflation in Australia has increased the pressure on the RBA to cut interest rates again.
- Cutting the inflation target would be a major mistake as it would risk blowing the credibility of inflation targeting and add to the risk of deflation.
- The RBA is far from being out of ammo.
- We continue to see the cash rate falling to 1% by year end and now see the first cut coming as soon as May.
- For investors, it’s going to remain a low-interest rate environment for some time to come.
Surprisingly weak Australian inflation has led to expectations the Reserve Bank will soon cut rates. But what’s driving low inflation? Is it really that bad? Why not just lower the inflation target? Will rate cut help? And what does it mean for investors?