Peter Martin, arguably the top economics journalist in Australia, appears to have been briefed by an RBA insider that the Bank will cut the cash rate next week to 2 per cent, a record low, and I’ve little doubt this will occur (see Reserve Bank to cut interest rates in May in face of weak economy). With inflation and expectations of future inflation very low, super low interest rates globally, a need to keep the exchange rate down, and concerns over the economic outlook, it makes sense to cut the cash rate.
That said, the economy may well be stronger than the Bank thinks, as the wealth effect from strong property markets, particularly in Sydney and Melbourne, appears to be partly offsetting the negative shock from the end of the mining boom. This at least seems the case based on Wesfarmers’s encouraging (though not spectacular) recent retail sales report (see SMH coverage and the chart below). The miracle run of the Australian economy – 24 years since a recession – may continue for some time yet.