At first glance, data released this week should lessen the urgency for the Reserve Bank of Australia to loosen policy settings. After all, we learned that both unemployment and underutilisation rates fell anew last quarter, bringing them close to multi-decade lows. However, there is a significant risk that the Bank determines that the economy is able to sustain a lower rate of joblessness without generating above-target inflation. Therefore, if forthcoming CPI data show that price pressures are cooling in earnest, the RBA could start cutting rates as soon as next month, rather than in May, as we are currently forecasting.
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