WEEKEND ECONOMIST: Ripe for a rate cut

Despite some improvement in market conditions, bank funding issues and a slowing global economy leave ample room for the RBA to cut rates again next week.

The board of the Reserve Bank meets on February 7, next week. In July last year Westpac forecast that the next easing cycle would total 100 basis points beginning near year's end. Subsequently, the board decided to ease the overnight cash rate by 25 bps in both November and December. Based on current information, we continue to expect a further 50 bps of easings in this cycle with the next move at the February 7 meeting and another to follow in May.

The case supporting a rate cut next week is strong. Market pricing is certainly arguing for a move: current pricing puts an 85 per cent probability on a 25 bp cut.



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