RBA rate cut possible, timing less so



It's now practically a given that the Reserve Bank will cut interest rates sooner than later. And on Tuesday, investors will learn how the RBA defines "soon".

ANZ is betting on a rate cut this week. NAB sees a cut by July. TD Securities said it's too close to call. Bank of America Merrill Lynch sees the RBA opting to wait for now. Westpac favours an August cut. The futures market is now pricing in a 37 per cent chance of 0.25 percentage point cut on Tuesday.

"We expect the RBA will cut rates by July, but narrowly favour the RBA remaining on hold this month given the relative stability of unemployment, with the RBA adopting an explicit easing bias instead," NAB economist Kaixin Owyong said.

"The decision will be a very close call given weak inflation, and we expect the bank will downgrade its outlook for growth and inflation (and to a lesser extent unemployment) on Friday" when the Statement on Monetary Policy is released.

In a preview of the SoMP released last week, NAB said it expected the central bank to "wind back the growth outlook and trim its inflation forecasts".

"The growth outlook in particular has deteriorated since November, something the RBA will likely give a further nod to in February. We have seen some signs of softer consumer spending; more pronounced falls in building approvals and housing markets; and deterioration in the global economic and markets back-drop.

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