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Rate cut possible after soft inflation

AAP logoAAP 1/08/2016

The Reserve Bank is tipped by most economists to cut the official cash rate to a fresh record low in the wake of last week's extraordinarily low inflation result.

Financial markets are placing a 60 per cent chance the rate will be cut to 1.5 from 1.75 per cent at the central bank's monthly board meeting on Tuesday.

The latest consumer price index showed annual inflation at a 17-year low of just one per cent, while underlying measures of inflation - which smooth out volatile price swings - are running at a record low 1.5 per cent.

While a rate cut would aim to stimulate demand and provides a saving for people with a mortgage, it does hit savers who are already coping with meagre returns.

Economists are also concerned households are seeing record low rates as an indicator of a worsening economy, making them more cautious in their spending habits.

The weekly ANZ-Roy Morgan consumer confidence survey, a guide to future spending, is released on Tuesday.

It will take into account last week's benign inflation result and speculation of a rate cut.

Confidence edged higher the previous week, ending a month of declines.

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