The Reserve Bank of Australia will hold what could be a historic meeting tomorrow, Tuesday 2 September 2008. Should they decide to lower interest rates, it will be the first time in seven years that the cash rate has fallen after 12 successive rate rises.
Most economists are suggesting there will be a cut by 25 basis points, however, the most bullish are even suggesting 50 basis points for the current cash rate of 7.25%.
The Convenient Truth
So why is this? Without getting too analytical, there are many factors that are leading to such a situation:
The Australian economy is slowing
Current business conditions are tightening
Credit markets are being squeezed
Inflation pressures are easing
Global conditions have snuck up upon the Australian economy probably a little more readily than the RBA expected, which will allow it to loosen its grip on monetary policy somewhat: cutting interest rates therefore mitigates the impact of a deteriorating global economy.