If the RBA does cut rates by 25 basis points, the cash rate will remain at 3 per cent for the next two months at least.
THIS time last year, the Reserve Bank delivered some Christmas cheer to home owners by cutting interest rates.
And most economists think it will happen again this year, given the sharp and worrying decline in the investment intentions of our mining bosses.
Money markets are tipping an 83 per cent chance of a 25-basis-point cut when the Reserve Bank board meets on Tuesday, a move that would see the official cash rate fall to 3 per cent.
This would see cash rates return to the emergency settings last seen at the depths of the global financial crisis.
Economists at Westpac, National Australia Bank, HSBC Australia, Goldman Sachs, Barclays and the Commonwealth Bank are among those who believe rates will be cut.
If the RBA does cut rates by 25 basis points, the cash rate will remain at 3 per cent for the next two months at least, since the RBA will break for two months over the holiday period.
Paul Bloxham, chief economist of HSBC Australia, says the RBA would be concerned about new data this week that showed investment intentions for next year, particularly in the mining sector, had been revised sharply downwards.
"The much-needed rebalancing of the economy, away from mining and towards other sectors, is still just a forecast and not yet in the numbers. This would be starting to worry the RBA," Mr Bloxham said.
"With a two-month hiatus before the next RBA meeting, inflation on target, weakening investment intentions, and only modest signs that monetary policy is driving [a] rebalancing of growth as yet, we expect another 25-basis-point cash-rate cut next week, ahead of Christmas."
NAB's chief economist, Alan Oster, said deteriorating business confidence was a concern, with the high currency undermining competitiveness.
"Our October business survey reported the weakest business conditions since mid-2009 with very weak forward orders and business confidence," he said.
"As we see it, increased uncertainty about a recovery in growth momentum next year has heightened the risk that the cash rate may need to go lower, sooner."
The chief economist at Goldman Sachs Australia, Tim Toohey, said weaker investment intentions meant the need to reflate non-mining activity was more urgent.
"When combined with the ongoing strength of the Australian dollar and the benign wages report from two weeks ago, recent developments lean towards our expectation for a rate cut at next week's board meeting," Mr Toohey said.
Westpac chief economist Bill Evans said in recent months wages growth had been slowing and the household savings rate had remained around 10 per cent, while the business outlook was deteriorating.
"We do not expect to see a reduction in the savings rate. That will restrict consumer spending growth to the pace of growth of household incomes," Mr Evans said.
"In turn, employment growth is expected to remain subdued while wages growth is slowing."
Mr Bloxham said Australia's economy was also still dealing with the effects of the recent slowdown in Chinese economic activity.
"The previous slowdown and the associated fall in commodity prices is still flowing through to the local economy. This has been reflected in recent declines in business conditions and confidence, as well as lower investment intentions," Mr Bloxham said.