Australia inflation moves back into RBA target band

Australia's annual inflation rate has moved back into the central bank's target range for the first time in more than two years, data showed Wednesday, all but ruling out more interest rate cuts.

Consumer prices rose 0.5 percent in the March quarter, taking the annual rate to 2.1 percent, the Australian Bureau of Statistics said. This was up from 1.5 percent in October-December, but slightly below forecast.

The reading is within the Reserve Bank of Australia's 2-3 percent target band for the first time since the September quarter of 2014, boosted by price rises for petrol and electricity, which was partly offset by a drop in the cost of fruit.

Underlying inflation, which smooths out volatile price swings, was at 1.8 percent.

The dollar slid to 75.09 US cents, from 75.54 US cents, after the figures came out.

Analysts said the data reduced any likelihood of more cuts to interest rates, which are already at record lows, as the RBA juggles a booming property market with mixed economic data.

"The rise in underlying inflation in the first quarter, coupled with the RBA’s financial stability concerns, dramatically reduces the chances of any further interest rate cuts," said Capital Economics' chief Australia economist Paul Dales.

"That said, price pressures and economic growth are not strong enough to warrant interest rate hikes. Interest rates are unlikely to rise above 1.5 percent this year or next year."

AMP Capital chief economist Shane Oliver agreed.

"With inflation moving in the right direction and given the RBA’s increased emphasis on an inflated Sydney and Melbourne housing market and rising household debt, the RBA is unlikely to make any adjustments to interest rates any time soon," he said

"We expect it to keep the cash rate at 1.50 percent for the next year at least."

The Reserve Bank slashed rates 300 basis points between November 2011 and August last year to support non-resources industries as the economy transitions out of a mining investment boom. It has remained on hold since then.

Its board next meets on May 2.