RBA tweaks its policy agreement

Philip Lowe’s first job as RBA Governor has been to emphasise the medium-term nature of the 2-3% inflation target and highlight how the RBA juggles this with its often conflicting objective of financial stability. These tweaks to the RBA’s framework just make official what the RBA has been practising for some time, but the markets will probably still interpret them as a sign that the RBA is unlikely to cut interest rates below 1.5%. We still think low inflation will eventually force rates to be cut to 1.0%.