Reserve Bank governor Gill Marcus.

Inflation expectations dropped to the lowest level since the Reserve Bank cut borrowing costs almost two years ago as the bond market gives legislators the all-clear to lower the benchmark interest rate

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Inflation will average 5.53 percent a year for the next five years, according to the gap between yields on fixed-rate debt due in 2017 and similar-maturity inflation-linked bonds.

The so-called breakeven rate, which fell 59 basis points in the past month, is at the lowest level since November 2010, when central bank governor Gill Marcus reduced the repurchase rate to 5.5 percent.

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