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UPDATE 1-Australia nearer to rate cut as inflation stays tame
February 2, 2015 / 1:21 AM / 3 years ago

UPDATE 1-Australia nearer to rate cut as inflation stays tame

* Benign inflation, global easings add to case for rate cut

* Another central-bank watcher in media tips a move on Tuesday

* RBA policy announcement due at 0330 gmt on Feb. 3

By Wayne Cole

SYDNEY, Feb 2 (Reuters) - Australia looks likelier to see a cut in interest rates this week as inflation stays subdued at home while central banks world wide opt for added stimulus to revive economic growth.

With domestic data suggesting inflation is comfortably below the Reserve Bank of Australia's (RBA) target band of 2 to 3 percent, there is intense speculation the central bank will shave a quarter point off its 2.5 percent cash rate at the year's first policy meeting on Tuesday.

Adding fuel to the fire, another RBA watcher in the media declared a move was more than likely this week. Writing in The Age newspaper, Peter Martin said policy makers were concerned that economic growth had slowed while unemployment stayed high.

The piece contained enough detail on the bank's revised forecasts to suggest Martin had inside knowledge.

"I agree strongly with some of his key reasons why I think you can't rule a cut out tomorrow," said Scott Haslem, chief economist at UBS.

In particular, recent readings on domestically-driven inflation had showed a slowdown to a five-year low in a marked change of trend for a measure that had been stubbornly high.

Private figures from TD Securities and the Melbourne Institute out on Monday showed inflation in non-tradable items, mainly services, stayed down at 2.5 percent in January, having been up at 3.3 percent as recently as June last year.

Overall consumer price inflation rose just 0.1 percent in January from December, while the annual pace of 1.5 percent matched the lowest reading since July 2012.

Financial markets imply around a 62 percent chance <0#YIB:> of a rate cut on Tuesday and are fully priced for a drop to 2.25 percent by March and 2 percent by mid-year.

The cash rate is already at an historic low and has not been lowered since the last move in August 2013.

One argument against an easing has been speculative froth in the housing markets of Sydney and Melbourne. A survey from property consultant CoreLogic RPData on Monday showed home prices in the major cities jumped 1.3 percent in January, from December, to be 8 percent higher for the year.

Yet the economy as a whole was facing stiffer global headwinds, including falling prices for many of Australia's major resource exports and a darker outlook for China.

The rush by many other central banks to ease their policies also argues for the RBA to follow or risk the Australian rising to uncompetitive levels.

An added wrinkle is political uncertainty as speculation swirls around the future of Prime Minister Tony Abbott.

A bruising voter backlash in state elections and a slump in his personal approval ratings has sparked chatter of a party revolt against his leadership. (Reporting by Wayne Cole)

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