One more rate cut before year's end

National Australia Bank believes the Reserve Bank of Australia will cut the cash rate at least once more before the end of the year.

Speaking at the NAB Budget Breakfast in Sydney yesterday, National Australia Bank’s chief economist, markets Rob Henderson said the reasons the Reserve Bank cut the official cash rate earlier this month still exist, as such, another rate cut is now all but certain.

We are in the middle of an Indian summer at the moment. We had a long summer filled with a lot of mining activity, but eventually that summer must come to an end.

When the mining boom does come to an end, something will have to step in and pick up the slack. Unfortunately, we are not going to see a strong pick-up in non-mining related activity this year and that means a very soft economy.

The RBA cut rates in May – we had predicted the next rate cut to occur in June, but all the reasons the RBA gave were the reasons we had expected to see a cut the month later. Those reasons are still there. The issue that the RBA has now is dealing with the threat that low interest rates spur house price bubbles.

Because of this, I don’t think we will see rapid-fire rate cuts from the RBA, but I think we will see one more down the track. The exact timing of that will depend on the data, but we expect to see the cash rate hit 2.5 per cent by the end of the year. Normally we have received a rate cut in the last quarter of the year, but once again, I’d stress that the exact timing is difficult to predict.



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