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17 December 2008

Extract from latest Westpac update issued today!

The Reserve Bank Board is scheduled to meet again on February 3. With some market and media speculation that it may hold an unscheduled meeting in January the Minutes of the December Board meeting were at pains to emphasise that the substantial 1% cut in the cash rate on December 2 was partly in anticipation that no further action could be expected until february. With official rates only now moving below the neutral level we expect that the Bank has substantially more work to do. Markets are pricing in as much as 100 basis point cut for February.

We expect the Bank may be a little more measured now that rates are below neutral but given the Bank's actions so far we cannot easily dismiss prospects for a larger cut than our preferred view of 50 basis points. The most important issue is how low rates will eventually go. We expect that the RBA's cash rate will bottom out at around 2.75% by the June quarter.

Bill Evans, Chief Economist, Westpac Bank

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