More bearish NAB now expects three interest rate cuts in 2013

A more bearish outlook on the economy has seen NAB revise its interest rate expectations to forecast three rate cuts in 2013, taking the cash rate to a new record low of 2.25% by year-end.

The bank had previously forecast just one rate cut in 2013.

It expects the first rate cut in the first quarter of the year (either February or March) and has tentatively penciled in further rate cuts in May and August.

“With the economy continuing to weaken and unemployment set to rise noticeably through 2013 the RBA will need to cut significantly further than previously expected in 2013,” says NAB chief economist Alan Oster.

The bank has downgraded its 2013 GDP forecasts from 2.5% to 2% with unemployment expected to rise to around 5.75% by late 2013.

“That would see, on a no policy change basis, a budget deficit in the $10 billion to $15 billion range for 2012/13," says Oster.

Oster says the weaker activity outlook will also help contain inflation to below 3% (within the RBA target band) “even including the carbon tax impact”.

“Nor do we see the Australian dollar offering much relief to a struggling economy,” he says.

NAB expects the dollar to track lower over the course of the year to reach parity with the US dollar in late 2013.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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