Rates could now be in for a cut rather than the two hikes forecast by most economists earlier in the year.
That's according to Westpac's latest interest rate prediction, which says the market is now pricing in a 25bp decrease by October, with a 50% chance of another cut by February of next year. The bank's chief economist, Bill Evans, has forecast a sequence of rate cuts, beginning in December and following throughout 2012, to leave rates 100bps below their current level.
Evans said the first rate move wouldl come due to deteriorating global conditions, including the Eurozone debt crisis. The following cuts, he said, would be in response to domestic weakness outside the mining sector. Unemployment is expected to rise, while business and consumer confidence remain soft, Evans said.