Issue when baking normals I baked the normals of a high poly mesh to a low poly mesh using cycles but the result seems somewhat odd.

This is how the low poly mesh looks like with baked normals:


This is the high poly sculpt:


This is the normal map:


The cage is a duplicate of the low poly mesh with a displacement modifier applied. All three objects are in the same location. Low poly does not share UVs. Shading is set to smooth. 

How can I get the normals right?

Here is the .blend file:



Update: Since it was suggested that this issue occurs because of the difference between high and low poly I made a new subtle sculpt but the error still is present:
Previously I pointed it out that you didn't smooth the object.  That's not the case, see update.

Update:

Your normal map is baked correctly.

I brought it to Blender Internal Render and this is the result.

Cycle has shading problem on lowpoly models.  Whether you smooth it or not, it will be rendered as if not smoothed.

I previously missed that point, too.  Your process isn't the problem.  Cycle is.