The Reserve Bank of Australia’s new forecast that underlying inflation will remain below the 2-3% target range until mid-2018 supports our view that interest rates will soon be cut by a further 0.25% to our long-held forecast of 1.5%. Governor-in-waiting Philip Lowe will then have to work out if rates need to fall below 1.5%. Even if he decides they don’t, he may not raise rates until 2018.
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