European crisis 'could encourage RBA to cut rate'

Economists have predicted that the worsening financial crisis in Europe will prompt the Reserve Bank of Australia (RBA) to put a halt to any further cash rate hikes in the next few months  a reversal of previous forecasts.

Rory Robertson, interest rate strategist at Macquarie Bank, told the Daily Telegraph that the uncertainty in the global markets, which has been sparked by Greece’s severe debt crisis, is likely to encourage caution in future RBA rate policy.

"The RBA almost certainly will be on hold for the next few months at least, and perhaps for much longer," he said.

Meanwhile, Kristye van de Geer, ASX derivatives markets manager, suggested there is even a small chance the central bank will cut the official cash rate at its next meeting.

The newspaper observed that futures markets betting had recently put the RBA rate at 5.25 per cent come this time next year. However, by the weekend the prediction had been adjusted to 4.75 per cent.

"That difference, if borne out, would save the average borrower $100 a month, provided the Big Four play nice," added the paper.

Last week, the RBA increased the official cash rate by 25 basis points to 4.5 per cent in a move it said would bring rates back to "average levels".

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