Rate cut on the horizon as growth forecasts slashed

The Reserve Bank today slashed its growth forecasts, with uncertainty in Canberra turning into economic uncertainty.

The shift makes the job of balancing the federal budget almost impossible, but it spells good news for anyone with a mortgage.

The Reserve Bank today released the evidence that prompted it to cut interest rates on Tuesday.

"Slowing China, falling iron ore prices - that combination is hurting the Budget," said Chris Richardson of Deloitte Access Economics.

"But it's now under pressure from politics too."

Richard Holden of the UNSW business school said: "Uncertainty is the enemy in all economies, especially political uncertainty."

The RBA now says economic growth will be a quarter of a percent weaker this year, now between 2.25 percent and 3.25 percent. 

It seems a small shift, but it represents $4 billion less sloshing around our economy.

"It's business that's going to drive forward the economy - and it's in the slow lane," said Australian Industry Group's Innes Willox.

"Business needs some help to make sure it can grow."

The RBA also says that with cheaper petrol prices, inflation will be lower than expected. And that opens the door for more rate cuts.

"There's enough in what the Reserve has said today to say it may not be the last cut," Mr Richardson said.

On money markets, the odds of a rate cut next month were cut from one in three to one in five. The numbers were actually a little better than expected. 

But the chances of a rate cut by June are said to be 100 percent.

The stockmarket's run was extended today, with 12 consecutive upward days. It has gained 9.5 percent in that time, an extra $165 billion of wealth

One thing the Reserve Bank is hoping is that all this stimulus will see households loosen their wallets. 

But it is unsure it will work this time, because of an attitude of saving.

While saving is good for families in the long-term, it is not so good for economies or governments.