Reserve Bank of Australia Governor Glenn Stevens has not ruled out a possibility of a rate cut in Jan 2009.

Traditionally the RBA Board does not meet in the month of January. The first meeting next year has been scheduled on Tuesday, 3 February 2009.

Following this month’s 100 basis point cut to reduce the federal cash rate to 4.25%, further economic uncertainty has caused debt futures market to predict a further 25 basis point cut in January 2009.

With increased home loan approvals in October, the benefits of a 300 basis point cut since September ‘08 is beginning to surface. Whether it will prevent the Australian economy from going into recession remains to be seen. On a more optimistic note, in response to a question, Mr. Stevens said Australian house prices were unlikely to decline by 30 to 40%, like the US, because of an undersupply of housing.

“I think we can rest easy,” he said.

Mr. Stevens said Australia was unlikely to fall into a “deflation trap” amid falling energy prices.