Now all four big banks see stronger case for Melbourne Cup Day rate cut

All four major banks say the underlying inflation figure of just 0.3% in the third quarter has increased the prospect of the RBA cutting rates on Melbourne Cup Day.

NAB economist Alan Oster says the bank has changed its rate call and is now anticipating a rate cut next week and another one in February.

The bank had previously forecast no rate cut until November 2012.

However Oster says the rate cuts would not be part of a “cutting cycle”.

Headline inflation for the September quarter came out as expected at 0.6%.

ANZ says the underlying inflation data gives the RBA “the green light to cut next Tuesday”.

Westpac points to the underlying measure and the history of the RBA moving rates every November for the past five years as reasons for a possible Melbourne Cup rate cut.

The bank has forecast a December rate cut since July.

“This trend in inflation also provides further support for our view that this cycle will not be a one-off cut. We have held the view that a total of 100bps will eventually be shaved from the cash rate,” says Westpac chief economist Bill Evans.

Westpac expects the next rate cut after November to be in February.

CBA chief economist Michael Blythe said the chances of a rate cut had stepped up significantly, but was more circumspect.

“Clearly the odds on a rate cut next month have gone up a long way.  But the policy decision is more complicated than just assessing one number.  RBA deputy governor [Ric] Battellino stressed yesterday that the bank looks at a range of indicators when determining the policy stance.  And the key question is whether the economy needs some additional support.”