Major bank predicts 0.5 per cent rate cut

NAB announced yesterday that it expects the Reserve Bank of Australia to reduce the cash rate to 2 per cent by making 0.25 per cent cuts in March and August next year.

It comes after Westpac forecast that the Reserve Bank would reduce the cash rate both in February and March, leading to a rate no higher than 2 per cent.

The official cash rate has remained at a record-low 2.5 per cent for 16 months.

NAB’s forecast was driven by gloomy economic conditions, including GDP growth of 0.3 per cent in the third quarter of 2014, which the bank said was below expectations, and a sharp decline in bulk commodity prices recorded in October.

NAB said that household retail demand growth continues to trend up but that consumers are reluctant to spend, while demand for personal credit has weakened.

“Housing credit growth continues to gather pace from low levels and there are signs of a rise in household debt, although the household saving rate remains elevated,” according to NAB.

“There is a risk that the expected decline in mining investment may occur later but be larger than so far expected. Strengthening business credit growth offers some prospect that the non-mining investment climate is improving.”