The 0.2 per cent decline in the March quarter consumer price index had everyone talking about a possible rate cut by the Reserve Bank of Australia, but finance and economic commentator Michael Pascoe argues that it is not as clear-cut as it seems.
"The RBA won't like this week's figures. It is mindful of the global deflationary danger and would like to keep inflation in the band," Pascoe said.
However, he also argued that the National Australia Bank did not think that the RBA will cut rates, rating it as only "a 55 per cent or 45 per cent chance" as the bank remains generally optimistic about the near-term performance of the Australian economy.
"The reality is that the overall economy has been showing signs of picking up, as demonstrated by NAB's monthly business conditions survey," Pascoe said. "Employment growth has been reasonably good and there are even indications that non-resources business investment is stirring."
Pascoe also cited the speech delivered by Governor Glenn Stevens last week, saying that the monetary policy has already done everything that it can for economic stimulus and suggesting that it is now the government's job to do more, such as investing in infrastructure. Some are actually predicting that Turnbull and company could start throwing some infrastructure billions around come Tuesday, which is the federal budget day.
The financial analyst concluded that yesterday's figures do not automatically mean that RBA has to cut rates this coming Tuesday. "What will matter more to the board is the bank's outlook for inflation," Pasco said.
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