TWEET TALK: Cut consensus

Economists unanimously expect the Reserve Bank to drop interest rates today, but not all agree with the rationale for such a move.

Tweet Talk takes the best of Twitter and brings it to you. Today, economists weigh in on the move they think the RBA will make on interest rates for December.

Ahead of the Reserve Bank of Australia's decision on interest rates today at 1430 AEDT, the market is pricing in a 93 per cent chance of a rate cut and there is unanimous consensus for a reduction among 15 economists surveyed by AAP. While most on Twitter are calling for the RBA to drop the cash rate with more to follow, there is one who is stridently against any further downward adjustments.

At its October meeting, the RBA cut the official cash rate to 3.25 per cent, from 3.5 per cent before deciding to hold in November. Should it decide to reduce interest rates today by 25 basis points to 3 per cent, this would equal the all-time low reached during the depths of the global financial crisis in October 2009.

Following his column on Business Spectator (The RBA's shameful 2012, December 4), which was a scathing assessment of the RBA's tardiness in lowering the cash rate, Market Economics managing director Stephen Koukoulas (@TheKouk) expects the central bank to lower the cash rate by a further 25 basis points.

"I think the RBA cuts 25bps, but I suspect that in the new year, it will need to get rates even lower. Inflation is very low."

Head of investment strategy and chief economist at AMP Capital Shane Oliver (@ShaneOliverAMP) also expected the RBA to drop the cash rate by the standard 25 basis points, saying recent weak economic data demanded the move.

"I expect a 0.25 per cent cut. The run of poor data starting with last week's poor capex figures has made the case to cut overwhelming."

On the contrary, Eureka Report investment strategist Adam Carr (@AdamCarrEcon) believes that while the RBA will drop rates today, the move will be based on political and industry pressure rather than sound economic logic.

"The strong non-mining economy would argue against further stimulus as would the investment data showing an ongoing boom," Carr tweeted.

"That said, the RBA board will probably still cut, they react more to industry and political pressure."

However, market analyst with optionsXpress Ben Le Brun (@benlebrun) tweeted that he is the most confident of a rate cut he has been all year because there is no economic data that would suggest the RBA should hold fire.

Asked how much further rates would fall this cycle Le Brun tweeted: "I think at least another 50bp into 2013 depending on the breaks. Chinese and US recoveries might mean less cuts than expected."

Finally, treasury dealer at the Arab Bank of Australia David Scutt (@David_Scutt) he tipped a cut and that the RBA would also need to issue a dovish statement the dollar going "bid" and the "offer" coming on stocks.

He tweeted that the distance the cash rate still had to drop would hinge on the US and China recoveries. If they falter he believes rates could fall a whole lot further.

"Depends if the recovery in the US & China can be sustained. If yes, this'll be it. If not, well, it'll be a whole lot lower."

"With mining boom cooling, CPI benign, confidence low and credit demand weak, safest bet for the #RBA is to ease today #ausbiz."

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