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The case for below-neutral rates in Australia

It’s possible that prolonged weakness in economic activity and a jump in unemployment force the RBA to cut rates more aggressively than we’re anticipating. However, a more likely scenario resulting in below-neutral rates is that a sharper-than-expected slowdown in inflation and wage growth prompts the RBA to revise down its estimate of the natural rate of unemployment and/or the neutral rate of interest.

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