RBA 'will cut interest rates before Christmas'

An increase in unemployment and more people putting money into savings accounts will prompt the Reserve Bank of Australia (RBA) to cut interest rates before Christmas 2011, it has been claimed.

Some sources are predicting a fall of up to one percentage point – good news for homeowners paying back home loans, but not those trying to accrue savings.

Goldman Sachs and Deutsche Bank said this week that there will be two cuts of 25 basis points in the next few months.

Adam Boyton, chief economist at Deutsche Bank, said he expects the risk of another US recession to impact upon the Australian economy.

However, some financial experts have insisted this forecast is overly pessimistic.

The RBA has retained its benchmark interest rate at 4.75 per cent since November 2010.

Earlier this month, the RBA slashed its GDP prediction from 4.25 to 3.25 per cent, claiming that global economic turmoil is making forecasting difficult.

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