The minutes of the Reserve Bank of Australia's (RBA) latest board meeting suggest the central bank may cut interest rates again as early as next month.
The RBA on Tuesday released the minutes of its September 4 meeting, which showed board members were concerned about several threats to the national economy, including falling commodity prices, the high value of the Australian dollar and a weak global outlook.
It said it had room to cut the cash rate from its current level of 3.5 per cent if the outlook for Australian economic growth deteriorated.
The RBA cut the cash rate by a quarter of a percentage point in June, following a half a percentage point cut in May.
St George economist Janu Chan said the minutes suggested the RBA was leaning towards further rate cuts.
"There seems to be a clearer easing bias than we saw in the previous statement, in my view," she said.
"It seems the RBA is recognising the downside risks for the economy."
Ms Chan said she expected the bank to keep the cash rate on hold in October but to cut again in November.
However, ANZ economists Ivan Colhoun and Justin Fabo said they now expected the RBA to cut in October and November.
Mr Colhoun and Mr Fabo said the RBA had no reason not to cut next month.
"The main reason for the change of view is that lower commodity prices coupled with the persistently high Australian dollar will have a significant contractionary effect on the economy, they said in a statement.
JP Morgan Australia chief economist Stephen Walters said a lot had happened since the RBA's board meeting two weeks ago.
He said an announcement of new policies by the US Federal Reserve and the European Central Bank (ECB) had helped to boost market optimism about the global economy.
Mr Walters said the RBA was edging closer to an interest rate cut but three things would need to happen that occurred.
He said the first condition was persistent data showing an exaggerated weakness in the Australian economy.
The second was a consistently high Australian dollar while commodity prices fell.
"Much of the fall in iron ore prices, though, has been reversed, so the gap between export prices and the currency has closed somewhat," he said.
"This takes some steam out of the argument that the RBA should cut the cash rate to lower the Australian dollar and relieve some of the pressure on the non-mining parts of the economy."
Mr Walters said the third condition for a rate cut would be more bad news from overseas, though the chance of that occurring had receded somewhat.
"We remain content, then, that near-term rate cuts from the RBA remain unlikely," he said.
"Indeed, we continue to favour December as the most likely timing for the next RBA rate cut, followed by a further and final quarter point cut at the February 2013 board meeting."
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