bigstock-A-plastic-calculator-displays--41935279The cash rate will fall to a low of 2.25% before the end of the year says NAB chief economist Alan Oster.

NAB is forecasting two rate cuts - one in August and now an additional one possibly in November if not sooner -  following a more "sober and realistic" outlook from RBA governor Glenn Stevens.

All the major banks expect a rate cut next week with ANZ changing its forecast from November to August.

"Until yesterday the RBA had been expressing optimism about other drivers of growth picking up," says Oster.

"Yesterday Glenn Stevens provided a much more sober and realistic outlook, suggesting that the economy cannot rely on housing and consumption to plug the growth hole.  This is in line with our forecasts and suggests that having recognised the reality of lower growth with benign inflation more rate cuts are likely.

"We had already been forecasting a 25 basis points rate cut in August to 2.5% and with the governor giving the green light for lower interest rates this now looks a sure thing.

"We now also expect an additional 25 basis point cut to 2.25% before year end – most likely in November after the third quarter CPI although it could be earlier.

"Beyond this, we expect the Australian economy will continue to grow below trend, income growth to be weak, and the unemployment rate to rise to and possibly above 6.25%.

"So the RBA will retain a bias to ease well into 2014 and a cash rate below 2¼% remains a real possibility."

(source: Propertyobserver.com.au - By Larry Schlesinger)