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Economics, Opinion

Christmas rates > Last chance

The Reserve Bank board meets on Tuesday for the final time this year with more and more experts predicting we will see another 25 basis point interest rate cut.

The very fact that this is the last meeting this year, and there won’t be one until February may be the strongest reason why we may see a rate cut.

Locally consumer sentiment is still down, inflation is under control and the housing market still lagging. But what will be at the forefront of the RBA’s mind is Europe. With the situation in the continent changing rapidly, a lot could happen in a couple of months. Given that the RBA board takes a holiday in January it may take out some insurance (which it did last year by lifting rates) in the event the global situation deteriorates as we enter the new year.

Of course the RBA could always call an emergency board meeting in January, but that may prompt a sense of panic.

But an even bigger question is, even if the RBA cuts, will the banks pass on those cuts in full.

NAB recently warned funding costs are rising again, and S&P last week cut the credit ratings of the big four banks by one notch.

I wouldn’t be surprised to see the banks using that very excuse for not passing on any rate cut in full.

Merry Christmas.

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