Cash rate to hit 2.25pc

National Australia Bank is predicting three rate cuts this year despite the fact that new research shows business confidence is on the rise.

According to NAB’s latest monthly business survey, business confidence improved considerably in December after deteriorating to its weakest level since April 2009 in the previous month.

Despite this, the bank’s chief economist  said he still expects the Reserve Bank to cut the cash rate three times this year as GDP growth is expected to be sluggish.

The Reserve Bank would possibly  look to cut the cash rate as early as February.

The Australian economy has softened, with leading indicators suggesting the first half of 2013 will be difficult.

Near-term outlook is also very soft with growth forecasts currently sitting at 2 per cent for 2013. Downward demand and price pressures have shifted the balance of risks towards an RBA rate reduction in February rather than March.

But with unemployment rising to 5.75 per cent by mid-2013, we still see the need for two additional 25 basis point rate cuts possibly in May and August, taking the cash rate to 2.25 per cent by year’s end.



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