Will RBA cut rates or not?

The Reserve Bank of Australia (RBA) will decide on its key rate tomorrow morning. Almost half of the market expect a rate cut. That means no matter what happens the decision is likely to cause some volatility.

The reason behind the disagreement amongst the analysts is the uncertainty about the interpretation of the recent inflation data. At 0.5% (quarter on quarter) the overall rate of consumer price inflation was not that bad. The trimmed mean on the other hand reached an all-time low though. 

If the RBA really was to cut the key rate at this stage the step no doubt would be of a pre-emptive nature. It is certainly not entirely clear whether the rate of inflation is under pressure. 

As concerns about a collapse of the Chinese economy (by far the largest export partner of Australia) are easing the real economic risk factors should also point towards a wait-and-see approach. 

"However, it has to be admitted that the outlook provided by the dollar block central banks resembles a lottery at present. Non-linear positions seem much more rewarding at present", says Commerzbank.