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Is a rate cut on the cards tomorrow?

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Marketers remain conflicted whether or not the Reserve Bank of Australia will cut the official cash rates tomorrow, with the odds of a cut around 50 per cent. 

However, RBA’s ‘shadow’ board composed of economists and academics believes that the central bank should keep rates on hold. They rated a rate rise as having 18 per cent probability and a hold rating as having a 63 per cent probability.

Still, economists are much more certain that a rate cut will happen, with 20 out of 25 economists from a Bloomberg survey expecting a cut following last week’s weak Australian inflation data.

According to Fairfax media, the national trimmed mean inflation came in at 1.7 per cent last week, with the weighted index underlying inflation at an even lower level of 1.3 per cent. These are the lowest levels in 13 years. Even the 0.25 per cent rate cut in May did nothing to stimulate a rise in inflation.

While a 1.5 per cent cash rate appears likely, the real question is whether the big four banks--Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank Ltd, and Westpac Banking Corp--will pass on all or just some of the cut to mortgage consumers, given the pressure on their net interest margins.

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