RBA governor Glenn Stevens: cash rate cut wasn't the only option. Credit:Bloomberg The chance of two cuts by next February's meeting were at 60 per cent on Tuesday morning, according to the market. Most economists, including some who were predicting rate rises this year, now see at least one more reduction in the cash rate this year. This is now reflected in the Australian government's benchmark 10-year yield, which on Monday hit its lowest ever level, of 2.2 per cent. On Tuesday, it had kicked up slightly towards 2.3 per cent.

Despite the softer tone of Tuesday's minutes, Capital Economics' economist for Australia Paul Dales says another cash rate cut is almost certain. He said the language around the first cut of the current cycle, in February last year, was similar - and then the RBA eased again in May. The markets may conclude that the minutes of the Reserve Bank of Australia's May policy meeting imply that the Bank is less likely to follow the recent cut in interest rates to 1.75 per cent with another reduction to 1.50 per cent," he said. "We disagree and believe that rates will be cut to 1.5 per cent at the August meeting. "A lot of what happens next may then depend on the evolution of inflation expectations." The Australian Bureau of Statistics in late-April reported that the consumer price index (CPI) contracted 0.2 per cent in the three months to the end of March, taking the annual rate to 1.3 per cent, compared with 1.7 per cent at the end of December. It was the first sign of deflation in seven years.

More importantly, the core annual rate, after lopping off or re-weighting volatile items such as fuel, came in at 1.55 per cent, well below the bottom of the RBA's target band of 2 per cent to 3 per cent. Loading Despite this, the RBA in its minutes reiterated its faith in the underlying strength of the Australian economy, and its ongoing rebalancing away from resource-related infrastructure investment. "In coming to their policy decision, members noted that developments over recent months had not led to a material change in the outlook for economic activity or the unemployment rate, but the outlook for inflation had been revised lower," the board said.