NAB changes interest rate cut call to December with one more in 2013

NAB has joined Westpac and ANZ by forecasting the Reserve Bank to cut the cash rate next week (December 4) to 3% and says there is potential for a further rate cut next year in May, but it could be as early as February.

The bank had previously forecast just one more rate cut in the current easing cycle in February.

“We now expect the next RBA rate cut of 25 basis points on December 4 but it is still line ball,” says NAB chief economist Alan Oster.

“In a sense, not much has changed but there has been enough evidence to tip our call over the edge.

“Data released over the past month have all but confirmed a weak GDP outcome for the September quarter and provide little evidence of any improvement into the December quarter.

“Not helping the economy is a still high Australian dollar, despite the recent softening in commodity prices, which is keeping on-going pressure on industries outside of mining. Softer commodity prices are raising concern about the near-term outlook for mining.”

"Much of the recent strength in the domestic economy has hinged on strong investment spending, led in particular by mining and supporting industries. While near-term capital expenditure appears to have improved modestly, official data suggest the outlook for investment has weakened again, with capital spending plans scaled back across the mining and non-mining economy," says Oster.

Oster also mentioned NAB's October Business survey, which reported the weakest business conditions since mid 2009.

"We now also see potential for a further cut next year, taking the cash rate to 2.75%, though the RBA is likely to hold off on a second cut until it has more information on the labour market, the Australian dollar and activity in both the domestic and international economies.

"At this stage we have tentatively put the further rate cut in May 2013 but if the local data continues to deteriorate it could come as early as February 2013."