An economist has claimed tepid inflation means a May rate cut is a foregone conclusion.

As tomorrow's RBA meeting looms, Westpac chief economist Bill Evans has said the March quarter CPI figures released last week make it a certainty "beyond doubt" that the Reserve Bank will cut the official cash rate. Evans said housing has shown particular weakness in the inflation data, and has helped build the case for a cut.

"The rare negative read on house purchase emphasises the parlous state of the housing construction sector and certainly that sector's need for some interest rate relief," Evans said.

Evans said that the bank expects 50bps of cuts in the near term, but has dismissed the idea that the bank will cut 50bps in May.

"We would tend to dismiss that prospect given the general cautious approach of the RBA. While we would not argue with such a decision, given that our view was that the case had already been made for a cut in February of this year, we expect that the RBA will prefer to assess the impact of the rate cut on financial conditions and confidence before it moves the full 50bps," he said.

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Westpac chief economist Bill Evans has said the Reserve Bank appears more concerned with economic weakness, a shrinking labour market and business investment, likely foreshadowing a rate cut when the Board meets next week.

"Since July last year, Westpac has forecast that the easing cycle was likely to entail 100bps in reductions in the RBA's cash rate with the final cut occurring in the September quarter of 2012. That forecast remains intact, with our expectation of a 25bp cut on May 1 to be followed by a further move in June or July. It is clear to us that the case for a second cut will be strong, despite the impact of the first
cut on financial conditions," Evans said.

The RBA had previously tipped that it would await fresh inflation data before making any moves to cut the cash rate. CPI data is due 24 April, and Evans said the figures should strengthen the case for a cut.

"The prospect of a CPI print on April 24 that might delay a rate cut seems low," he said.

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Top brokers have said investors are returning to the WA market after a long period of inactivity.

MPA Top 100 Broker Troy Cameron of Stratique Finance in Wembley, WA, has seen investors reawaken in the Perth market after a long period of slumber.

“Investor activity from the start of 2012 with renewed interest in the Perth property market as opposed to the former focus of Queensland and Melbourne,” Cameron said.

The Real Estate Institute of Western Australia has echoed Cameron’s claims, saying it has seen a rush of investors that is only set to grow as the end of the financial year approaches.

“Many potential investors who have been waiting and watching the Perth market, in particular, following the decline in prices since 2010, now sense that it’s an opportune time to look at entering the market,” the group said.

Cameron said the rental market was the key to the surge in activity.

“Rental yields are the talk of the Perth market and are going through the roof at the moment. Renters are lining up to view properties and landlords are reaping the benefits. This is having a flow on to investor activity and confidence,” Cameron said.

Fellow MPA Top 100 Broker Darin Yacopetti agreed, and said Perth metro areas were seeing rental yields of 4.5-5%, while mining areas could yield as much as 10%.

REIWA data has borne out the claims, showing that median rents in the Perth metro area increased by 8.1% over the past year. The median weekly rent for Perth now sits at $420 per week. Vacancy rates in the city are tight as well, at 2.3%.

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While it looks all but certain that the Reserve Bank will keep the official cash rate on hold when the Board meets tomorrow, borrowers are still hoping for a 25 basis point reduction.

According to a recent Loan Market Group survey, almost 70 per cent of borrowers expected a rate cut in March – a figure that hasn’t changed in the three weeks since.

“Although some progress has been made in the European debt crisis, and many economic indicators are within target, there remain stalled sectors that would benefit from an April rate cut by the RBA,” Loan Market spokesman Paul Smith said.

“The RBA has noted that the banks no longer face the cost of funding pressures that caused them to lift their home loan rates independently of the central bank.

“So if we get a cut in the cash rate on Tuesday consumers will be hoping their lenders follow suit and pass on the reduction in full.”

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