Limbo Rock is the less famous hit song by Chubby Checker and I make no apology for including it as a reference this week, with last week’s CPI data posting a 17-year low, which is likely to be a key determinant in the RBA’s decision as to whether they drop the official cash rate to a new record low this week. So, like the limbo stick, how low can it go?
On the one hand, this is the lowest inflation result in sixteen years. On the other hand, the result is smack bang on the RBA's forecast. Therefore, the RBA's decision for next week is line ball! Even if the RBA Board baulks at this week’s meeting, analysts expect CPI outcomes for the remainder of the year will likely be low enough to force another interest rate cut.a.
Financial futures market pricing of official cash rate
Market pricing for an August rate cut has dropped from around 66% at the close on 26 July to just above 50% after the CPI data and is back up to 60% as I write.