According to analysts at Westpac, downside surprise for Australian inflation has firmed up RBA’s rate cut expectations amongst market participants.

“Two cuts in the cash rate in 2019 has been Westpac’s expectation since February. This view has now become the market consensus, albeit with a difference of opinion still evident on the months the cuts will be delivered. Market pricing currently points to a May cut being a 45% chance after it peaked at roughly two thirds immediately after the disappointing March CPI outcome. 2016’s rate cuts have been used as justification for immediate action in 2019 given both episodes saw inflation well below target. We believe 2019 is different for a number of reasons, including the fact that the RBA carried an explicit easing bias into the 2016 May meeting, which is not the case in 2019.”