Glenn Stevens set to slash interest rates - McCrann

RBA governor Glenn Stevens is going to continue on Tuesday where he left off last year, with another big rate cut of either 75 or 100 points.

Rates to be slashed ... Herald Sun finance commentator Terry McCrann.

RESERVE Bank governor Glenn Stevens is going to continue on Tuesday where he left off last year, with another big rate cut of either 75 or 100 points.

This time it won't shock the experts. The shock would be if he led the RBA board to cut by less, or by more.

There is no chance of the board members cutting by only 25 or 50 points and self-evidently they aren't going to sit on their hands.

A bigger cut can't be ruled out absolutely. But it would take a monumental, dramatically sudden, global meltdown to force a cut of 125 or 150 points.

After the events of 2008, there's not much left really to shock us, or Mr Stevens and his fellow board members.

Yesterday's inflation numbers were essentially irrelevant to the decision. In days long past they might have fed into fine-tuning. But now it's all "big picture" stuff.

Mr Stevens can take as read that inflation - at least for the moment - is yesterday's problem. Now it's about action in our local recession and the continuing global disaster.

That points to two conflicting influences on what happens to official rates going forward - taking a breather to let the big rate cuts so far ``work'', and responding to any further global disaster.

Self-evidently, the RBA can't keep cutting by 75 or 100 points every month, or even every other month. After Tuesday the official rate will be down to 3.25 or 3.5 per cent.

There is no way Mr Stevens would want to, or could, rationalise following the US Federal Reserve all the way down to zero.

Indeed, it would require something - or things - disastrously extraordinary to go below 2 per cent. And I hasten to add, that is not a suggestion that we will go there, or even necessarily close. The RBA might well stop at Tuesday's level.

More pointedly, after Tuesday what happens to interest rates goes back to balancing between inflation and recession. On that level, the detail of yesterday's numbers is important.

In overall terms, inflation was a negative 0.3 per cent in the December quarter. Consumer prices actually fell slightly. But for the year they were still up 3.7 per cent.

Actually one major price fell - petrol. Take it out and the inflation rate would actually have gone up by a little over 0.5 per cent for the quarter, and have been a thumping 4.5 per cent or so for the year.

A number of other prices fell in the quarter - health services and financial services, thanks to lower interest rates. But petrol swamped everything.

The key driver of what the RBA does with rates after Tuesday is the global situation - both the state of the global financial market and what happens to the US and Chinese economies.

Unlike central banks in almost every other country, Mr Stevens uniquely retains great flexibility - to slash if necessary.