VIEW: ANZ write that "the downward surprise.....>

RBA: VIEW: ANZ write that "the downward surprise to core inflation in Q1 leaves

the RBA will little choice but to cut the cash rate by 25bp at its May meeting,

with another 25bp likely to follow in August. The much lower than expected

outcome for core inflation means that something has to materially change in

order for the RBA to credibly forecast an eventual return to 2% inflation. That

something has to be a stronger growth outlook that puts material downward

pressure on underemployment in the labour market. The contribution the RBA can

make to a stronger growth outlook is to ease monetary policy which, in its own

words, will "support the economy through a depreciation of the exchange rate and

by reducing required interest payments on borrowing, freeing up cash for other

expenditure." We have doubts that modest rate cuts will do much to push

inflation sustainably higher, but it's hard to see that the RBA has much choice

but to use the tool at its disposal, ie a lower cash rate. We don't see the

timing of the election being a constraint on the RBA acting."