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More rate cuts to come: NAB

By webmaster
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The Reserve Bank's decision to cut the official cash rate by 25 basis points yesterday may be just the start of things to come, with industry forecasters predicting another rate cut in February 2012.

While the RBA did not suggest that a sequence of cuts is likely from here, NAB's chief economist Alan Oster said at the next Board meeting the outlook for global growth will be worse.

"Yesterday, the Board decided the "inflation outlook afforded scope for a modest reduction in the cash rate" (emphasis added)," Mr Oster said.

"The directional bias for rates from here will be down for the next two or three quarters. Hence, there is scope for another cut in rates to 4 per cent at the February meeting."

The cut may be delayed for a month or two if the local economy continues to hold up. Or it might not happen at all. On the other hand, a meltdown in Europe could see an out-of-cycle emergency cut in December or January.

"The prospect of a 3 per cent cash rate by mid-year, as the market is pricing, seems too extreme. Another global recession of the same magnitude of the post-GFC event cannot be the central case," he said.

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