Cash rate could go to lowest level ever

The official cash rate could fall to a record low of 4 per cent as the economic outlook worsens and inflation fears fade, forecasters say.

The financial markets are fully pricing in another cut of a full percentage point to the OCR when the Reserve Bank next reviews the rate on December 4, which would lower it it 5.5 per cent.

Some forecasters expect the rate to bottom out at 4.5 per cent, as low as it has ever been, or even 4 per cent.

The economy has contracted in each of the first three quarters of this year and ANZ National Bank expects next year to be weaker still, with unemployment to rise to 6.5 per cent (from 4.2 per cent now).

The result of that, combined with much lower oil prices, would be quickly receding inflation and more aggressive easing in monetary policy, said chief economist Cameron Bagrie.

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By Brian Fallow

Posted: 18 Nov 2008

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