The chance of an interest rate cut is now better than ever with Australia's inflation rate easing by 0.6 percent in the quarter and 3.5 percent for the year.

The latest inflation figure is lower than the 0.9 percent CPI recorded in the June quarter and weaker compared to the 3.5 percent inflation rate for the same quarter in 2010 and the 3.6 percent CPI registered for the past 12 months.

This easing of inflation rates, which measures the trend of prices of goods and services in the economy, gives more room for the Reserve Bank of Australia to cut back on interest rates pegged at 4.75 percent for more than 10 months.

National Australia Bank chief economist Alan Oster told the ibtimes.com.au that there is now a greater possibililty for the RBA to cut benchmark cash rates to help the Australian economy, which now has been in laggards for almost a year due to very low consumer demand and various other external causes including the EU debt debacle.

Oster said in a telephone interview that an initial slash down of 25 basis points may be implemented in November, brining down rates to to 4.5 percent.

He noted that this is just the start and another 25 basis points cut would be placed in February 2012.

"I think this clears the way for a rate cut," said Shane Oliver, chief economist, AMP Capital in a related Sydney Morning Herald report. "The Reserve Bank had highlighted how important these numbers were.... Our view has been that they will cut next week and this reinforces that."

CMC Markets senior FX dealer Tim Waterer said in an emailed commentary that Tuesday's CPI figures, which is on the low side of expectations, has opened the door for an RBA rate cut next week.

But Waterer said this new expectation of a rate cut does not bode well for the Aussie dollar, which slipped well below USD1.04 cents after the data was released.

"The AUD was already under some pressure prior to the data due to a new bout of market nerves in the lead up to further announcements from the EU," he added.

The CMC Markets analyst further noted that for the AUD, a bounce to 1.04 and beyond is still possible this week depending upon the EU members meeting that can conjure up in the coming days.