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RBA set to cut interest rates again


Aussie households could be in for some early Christmas cheer, with the Reserve Bank of Australia (RBA) hinting at a possible rate cut for December.

However, a decision to cut the cash rate from 3.25 per cent next month will depend heavily on international events and domestic economic data.

In the minutes of its November 6 board meeting to discuss interest rates, the RBA said a mix of improved global conditions, higher inflation and domestic economic uncertainty prompted it to keep the cash rate unchanged.

However the minutes, released on Tuesday, suggested further rate cuts could be on the cards.

"Members considered that further easing may be appropriate in the period ahead," the RBA said.

"However, with prices data for the September quarter slightly higher than expected and recent information on the world economy slightly more positive, the board judged that the stance of monetary policy was appropriate for the time being."

Commonwealth Bank associate economist Diana Mousina believes the RBA will cut the cash rate either in December or February.

"We think that it is not a question of if, but when the RBA decides to cut interest rates again," she said.

She said a December cut was likely if the outlook for the international economy deteriorated or if Australian capital expenditure data, released next week, showed a downgrade in spending expectations for the mining sector in 2013.

National Australia Bank senior economist David de Garis agreed another rate cut was likely, with the timing likely to be guided by domestic and international events.

"We continue to expect that there is at least another cut out there and possibly more," he said.

"Even so, we doubt that RBA has yet accumulated sufficient evidence through November to suggest that December is a `live' event for another easing at this time."

He added that the bank would be watching for developments around the US `fiscal cliff' - a series of tax rises and spending cuts planned for the start of 2013.

Australian investors also seem to be putting their money on a December cut, with the futures market predicting a 59 per cent chance.

JP Morgan economist Ben Jarman said the RBA could be encouraged to lower rates again, noting evidence that earlier easing was starting to impact the economy.

"The RBA notes that leading indicators of the labour market are weakening, but acknowledge that (monetary) policy is gaining some traction in areas such as the housing market," he said.

"They certainly don't want to shut the door on any more rate cuts, and it makes sense in an environment where you're just starting to get traction to not send the signal that you're done."