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RBA should reduce interest rates now

I expect the Reserve Bank to lower interest rates over the year ahead. On timing, the December meeting is likely to see the start of the easing cycle.  The RBA discussed raising interest rates at their August meeting. Much has happened since then.

Global events are moving quickly. The European crisis has resulted in “extreme volatility in financial markets”, as noted by the Board in the minutes to the September meeting.

Against this backdrop, domestic consumer and business confidence have fallen to be well below average levels. Unemployment has moved higher, rising to 5.3% from 4.9%, and business surveys point to below trend growth. Also, core CPI inflation for Q2 was revised lower.