Analysts believe the Reserve Bank of Australia has room for another cut in the cash rate, following the lower than expected inflation figures

This article is more than 4 years old

This article is more than 4 years old

Australia’s inflation rate was steady at 1.5% over the year to the September quarter.

The consumer price index (CPI) rose 0.5% in the quarter, missing market expectations, figures from the Australian Bureau of Statistics showed on Wednesday.

Underlying inflation, which strips out volatile price movements, was 2.15% over the year, after a quarterly rise of 0.3%.

Meanwhile, the Australian dollar has fallen to a three-week low as weaker than expected inflation leaves room for the Reserve Bank to cut the cash rate.

At noon (AEDT) on Tuesday, the currency was trading at 71.26 US cents, down from 72.53 on Monday. The Australian dollar had dropped half a US cent when the inflation data was released at 11.30am.

The benign official inflation figures will give the Reserve Bank food for the thought when its board sits on Melbourne Cup Day.

“The number is much lower than expected and presents absolute no obstacle for the Reserve Bank of Australia to lower rates,” OANDA Australia and Asia Pacific senior trader Stephen Innes said. “The door is open and the RBA will likely walk through it.”

There has already been speculation that the central bank may cut the cash rate to counter the recent increase by the big four retail banks.

The cash rate has been at an all time low of 2% since May.



Malcolm Turnbull claimed the big four banks had “overdone it” with their recent round of independent mortgage rate increases.



The prime minister told Adelaide’s FIVEaa radio the increase by the banks was higher than justified, with Westpac’s 0.2 percentage points rate hike amounting to double what was needed to cover the cost of new capital requirements.



Other banks raised their rates by 0.15 to 0.18 percentage points.



Their decisions came shortly before the National Australia Bank announced on Wednesday its annual profit jumped 20% to $6.34bn.