According to analysts at ANZ, market sentiment about the prospect of a near-term rate cut from RBA has swung materially over the past month.

Key Quotes

“Following the release of very low inflation data for the March quarter, the market was 100% priced for a cash rate of 1.25% by the time of the RBA’s June meeting. Pricing dropped to suggest a 20% chance of such an outcome after the May RBA board meeting. Data this week have lifted pricing for a June rate cut to more than 70%.”

“The case for a rate cut is made, in our view. The degree of slack in the labour market is too great to generate wage growth that would lift inflation into the RBA’s target band.”

“We thought this was clear ahead of the RBA’s May meeting, yet no cut was delivered. Before finalising our forecast of a June rate cut, we want to consider the RBA Governor’s speech and the Board minutes from May, both due on Tuesday 21 May.”

“When the cash rate is finally cut, we think it inevitable that the lower bound for the cash rate will become an issue again.”

“We are hopeful that the combination of rate cuts and the tax cuts due to be delivered in the second half of 2019 will boost the economy.”

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