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August rate cut now likely

August rate cut now likely

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Staff Reporter

The latest data from the Australian Bureau of Statistics shows inflation has officially dropped below the Reserve Bank’s target range, opening the door to an August rate cut.

The weighted median Consumer Price Index measure shows that inflation slipped to an annual rate of 1.9 per cent in the June quarter – slightly below the RBA’s target range of 2 to 3 per cent.

Real Estate Institute of Australia (REIA) president Pamela Bennett said the inflation result should give the RBA room to cut the cash rate - which stands at 3.50 per cent - next month.

“The latest figures are well within the RBA’s target zone of 2-3 per cent and should provide a clear message to the RBA to further reduce official interest rates,” Ms Bennett said.

“With inflation well within the RBA’s target zone, it’s appropriate to have a further cut in interest rates” concluded Ms Bennett.

Also speaking about the results, the Housing Industry Association’s (HIA) senior economist Andrew Harvey said the Reserve Bank now had the ammunition needed to cut rates again in August.

“With Australia’s inflation this low the brakes on the economy can be further released,” he said.

“It’s time for the RBA to go for growth, not only to bolster consumer and business confidence, but to also assist the many non-resources sectors that face highly challenging business conditions.

“Australia’s residential building sector is in recession, and with the combination of Australian households deleveraging, a volatile global economy, and poor consumer sentiment, further interest rate cuts can help ensure a better outlook for the non-mining economy.”

While the RBA concentrates on the underlying measures of inflation it is worth noting that the headline rate of inflation is even lower, coming in at 0.6 per cent in the June 2012 quarter for an annual rate of 1.2 per cent.

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August rate cut now likely
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