NAB's switch followed data from the Australia Bureau of Statistics showing headline deflation for the first quarter this year. It was the first negative reading since the December quarter of 2008.

Although underlying inflation remains above zero, the year-on-year rate, of 1.55 per cent, is now well below the bottom of the Reserve Bank of Australia's 2 per cent to 3 per cent target band.

Wednesday's result, which caught nearly all forecasters by surprise, triggered a wave of rate call revisions by economists. Most now are open to the idea of at least one cut to the cash rate, to 1.75 per cent, before the end of the year, although NAB is the only large domestic lender to commit to one next week.

Westpac's chief economist Bill Evans says a cut might miss its targets and simply add to already high ratios of indebtedness.

The RBA would instead be looking at whether the March quarter inflation surprise changed its longer-term view of the economy, he said.

"We believe the RBA is concerned about Australia's lack of progress in lowering household debt," he said.

"Lower rates would be of little help in boosting business investment, whereas household debt is likely to be the sector of the economy responding to the rate cut."

According to futures market pricing, the chances of a cut next week have surged from 12 per cent before Wednesday's data release to 64 per cent on Thursday.

JPMorgan changed its rates call to predict one cut next week, followed by another cut in August. Macquarie, HSBC, Goldman Sachs and Capital Economics are others predicting a May move.

NAB said in a statement that the longer-term inflation outlook would also be downgraded when the RBA updates its economic forecasts next Friday.

"The February forecasts showed medium-term inflation consistent with the midpoint of the RBA's band," it said.

"It will be surprising if this new forecast isn't lower than their February forecast – certainly for 2016 and possibly beyond.

"[The] RBA remains an inflation-targeting central bank, so faced with this new lower inflation forecast it now seems likely that the bank's board will vote in May to take the opportunity to provide some slight further assistance to the Australian economy and so potentially help lower the unemployment rate more quickly than previously forecast," it said.

A moderate level of inflation normally reflects a healthy economy in which demand for goods and services – including for labour – just outstrips supply.

However, low commodity prices, flat wages, overcapacity and heavy discounting by retailers has kept a lid on price growth around the world, forcing central banks to drive interest rates to zero and below.

Many economists still say that this alone won't sway RBA governor Glenn Stevens, who appears happy at the moment with a falling unemployment rate and steady activity indicators.

"The RBA could justify a rate cut on the basis of the CPI data, on the grounds that the bank has an inflation target and inflation is now likely to be below the 2 per cent to 3 per cent target band at least until the first half of 2017," wrote ANZ  economists on Thursday.

"The risks are obviously there, and it's a close call, but we don't think the RBA will ease in May," ANZ said.

Commonwealth Bank of Australia's senior economist Michael Blythe said the bank was holding "somewhat nervously" to its "no-change" forecast.

"The RBA's mandate is reflected in their 2 per cent 3 per cent inflation target," he said.

"But unemployment is important as well.

"Jobs growth rates remain comfortably positive and the unemployment rate is trending down.

"A rate cut against that backdrop would be most unusual."

Goldman Sachs Asset Management's head of fixed income for Asia-Pacific Philip Moffitt says that although it would be reluctant to move on the day of the federal budget, the RBA might feel compelled to make a pre-emptive strike.

"The low core inflation rate, the negative headline inflation rate and the relatively strong currency – all those things combined – puts the RBA in a position that they don't want to deal with, but they have to," he said.

"The fact that we've got core inflation at 1.5 per cent  – not 1.9 per cent or 1.8 per cent – makes it necessary, we think, for them to move ahead of market expectations, rather than lag expectations."