Australian CPI lower than expected, stoking bets on rate cut
Australian inflation is slower than expected, opening the door for interest rate cuts and driving down its currency against the greenback and the kiwi.
BUSINESSDESK: Australian inflation was slower than expected in the first quarter, opening the door for the central bank to cut interest rates starting next week and driving down its currency against the greenback and the kiwi.
The consumer price index rose 0.1% in the first three months of the year, says the Australian Bureau of Statistics.
Economists had expected a rate of 0.6%. Annual inflation was 1.6% against expectations of a 2.1% rate.
The central bank kept the cash rate unchanged at 4.25% this month, saying it wanted more time to assess the pace of inflation before contemplating further easing in monetary policy.
It next reviews interest rates on May 1.
Traders are pricing in 108 basis points of cuts to the cash rate over the next 12 months, based on the Overnight Index Swap curve.
“You can bank on a 0.25% rate cut from the RBA at this meeting, and the market will now expect further rate cuts in the coming months,” traders at HiFX said in a note.
The trimmed mean measure of first-quarter CPI that the central bank watches was 0.3%, half the rate forecast by economists.
The Australian dollar fell to $US1.0275 from $US1.0319 immediately before the inflation figures were released and down from more than $US1.08 at the start of March.
The New Zealand dollar climbed to 79.18 Australian cents from 78.71 cents before the numbers were released.
A cut to the RBA’s cash rate would narrow its 175 basis point premium over New Zealand’s official cash rate of 2.5% and polish the relative appeal of the kiwi dollar.
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Australian CPI lower than expected, stoking bets on rate cut
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