Brokerage house predicts pre-Christmas rate cut

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Benign inflation data could see a pre-Christmas rate cut, a brokerage firm has claimed.

Peter Esho, chief market analyst for Invast, has predicted the RBA could cut rates before the end of 2015 following the release of benign inflation data. The ABS revealed today that the Consumer Price Index rose only 0.5% over the third quarter. This, coupled with stronger performance by the Australian Dollar, could give the RBA scope for another rate cut, Esho said.

The CPI read confirms that inflation is not only a secondary issue to growth, but also an opportunity to further stimulate demand in the economy. The RBA now has data on its side, and there is real downside risk to economic growth - and jobs - if it doesn't move to cut interest rates. The lower currency has not caused any foreseeable inflationary pressures, which means the RBA can push further in jawboning. With China having rate cuts on the weekend, the door for the RBA is now well and truly open for more cuts, to drive down the currency, without worrying about runaway house prices," Esho said.

While the RBA may not make its move on Melbourne Cup Day, Esho said the Bank would likely make a cut if the local currency moves toward the mid US70 cent range.

“They need to maintain an element of surprise and even though the recent minutes didn’t indicate an imminent cut, a November cut is probably a higher chance than what the market is signally and I would be a seller of the Aussie dollar anywhere above the US73 cent range,” he said.