ANZ's economists are forecasting another percentage point in official rate cuts next year.
The Reserve Bank has already slashed 175 basis points from the official cash rate over the past year, taking it to 3 per cent which is equal to the lows reached during the global financial crisis in 2009.
However, ANZ expects the RBA to reduce official interest rates by another 100 basis points.
If passed on in full by the major banks, such a move would take average standard variable mortgage rates down to their lowest levels since 1968, with rates around 5.45 per cent.
ANZ expects the RBA to cut rates to lows unprecedented in modern times, despite also forecasting the economy to grow 2.5 per cent next year and 3 to 3.25 per cent the year after.
"On the basis of the further sharp weakening in business conditions in mining in recent months, the tepid improvement in the non-mining sector, the deterioration in job advertising trends and the strong Australian dollar, ANZ now expects a further 1 percentage point cut in cash rates over the course of 2013," the bank's economists wrote in a note.
ANZ says further rate cuts will be needed to stop unemployment rising significantly.
The bank says large rate cuts would help shift the economy towards the non-resources sectors as the mining boom fades next year.
"If realised, such rate moves will provide significant further support to the non-mining sectors, including the housing market," the economists added.
ANZ's head of Australian economics, Ivan Colhoun, says efforts by central banks to boost the economies of the United States, Japan and Europe are keeping the dollar high.
"So when we put that whole picture together, it's telling us that unless there's further easing, we're going to have a weaker economy," he said.
"And I guess the other factor which I think's important is that the Australian dollar has kept strengthening even after these latest two rate cuts by the Reserve Bank."