RBA dishes up first of several rate cuts

So the RBA did it. It cut 25bps to 4.5% as it confronted a significantly lower trajectory for inflation, the germination of higher unemployment and less robust domestic growth than it was thinking even a few months ago. Economic malaise in the industrialised world, together with a clear slowing in China would no doubt have locked in the decision of the RBA Board to start a rate cutting cycle.

There is also some clear signs that commodity prices are turning lower with the RBA's own index down more than 5% in the last two months. If this continues as global supply comes on stream, the fall in commodity prices from here on could be large.

One and done? No. The growth and inflation outlook suggest the RBA will need to cut again with a 25 bp move in December and a path to around 3.5% in the middle of 2012 on the cards. With the Government only part through implementing the most aggressive fiscal turnaround ever recorded, the heavy lifting on policy is falling to the RBA. It knows this and knows that it more cuts will be delivered in the months ahead.