Analysts Forecast RBA Would Cut Overnight Cash Rate to 3%

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By Vittorio Hernandez | December 4, 2012 10:36 AM EST

Analysts agree that the Reserve Bank of Australia (RBA) would cut on its Tuesday, Dec 4, policy board meeting the overnight cash rate by 25 basis points to 3 per cent.

The move would bring down the key lending rate to a three-and-a-half-year low or the same level in April 2009, the height of the global financial crisis.

Economic experts said the emergency rate reduction would aim to serve as a buffer against weaker commodity prices and a slowing economy. ABC forecasts a 93 per cent chance the rates would be cut with the soft outlook for the Australian economy, flat-line retail sales and drop in company profits.

Daily Forex News had a similar outlook in the following report posted in YouTube:

Other indicators of an impending RBA rate cut are high unemployment rate and negative inflation rate.

"It is clear the economy is, in effect, treading water . . . Consumers are holding back on significant purchases," Brisbane Times quoted CommSec economist Savanth Sebastian.

"Interest rate cuts come in groups . . . Like cockroaches, there's hardly ever just one," added Bank of America Merrill Lynch chief economist Saul Eslake.

"The Reserve Bank cut in October, it held off in November, and now it knows it needs to do more. If it doesn't move on Tuesday it will have to wait two more months until its next scheduled meeting in February," Mr Eslake explained to Brisbane Times.

HSBC chief economist Paul Bloxham believes the December rate cut could possibly be the last for a while over inflation rate that is slightly higher than expectation.

"What we've seen since then is a run of slightly weaker data, slightly weaker wages data, and that does open the door for them to cut one more time. What we want to look out for is the next lot of inflation data, which we get in late January and there's a good chance that it'll be solid enough that the RBA might not want to go too much further," ABC quoted Mr Bloxham.

However, ABC business editor Peter Ryan said the high interest rate in the real world in the reason why the RBA may keep cutting into 2013. He pointed out that in April 2009 when the cash rate was 3 per cent, the average standard variable rate was 5.75 per cent. With the present 3.25 per cent key lending rate, the average standard variable rate is somewhat higher at 6.65 per cent.

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