The Reserve Bank will slash its key interest rate to a new record low of two per cent next year amid weaker commodity and house prices, Deutsche Bank says.
Deutsche Bank chief economist Adam Boyton says the RBA will cut the cash rate to a fresh low of 2.25 per cent toward the end of the June quarter before reducing it to two per cent, sometime around September or October.
"Are things going to get better over the next year or two than they have been over the past year or two? We don't think so," Mr Boyton told AAP.
"It's just that combination of some early signs of cooling in house price growth, weaker commodity prices over the past few months, combined with our expectation that the unemployment rate will rise to close to seven per cent next year.
"All of those things mean that on balance, we think rate cuts next year are more likely than not."
Mr Boyton said the strong housing market had previously prevented the bank's economists from forecasting rate cuts.
But easing house price growth and talk of regulations to cool investor activity in the property market, combined with forecasts of rising unemployment and declining commodity prices in 2015, led the bank to change its view, he said.
Deutsche Bank is the latest international firm to forecast rate cuts in 2015, after US-based funds manager AllianceBernstein last week said the next move in interest rates was likely to be downward.
Last month, Steen Jakobsen, chief economist at the Denmark-based Saxo Bank, told AAP the cash rate would need to be cut to two per cent but possibly as low as 1.5 per cent, as Australia heads into recession.
But the majority of economists still think the RBA's next move will be a rate hike, either in 2015 or 2016, according to a recent AAP survey.
The RBA's cash rate has sat at 2.5 per cent since August 2013.
