RBA: The next central bank to ease?

Speculation is high that the Reserve Bank of Australia (RBA) will be the next central bank to ease monetary policy at its meeting this week following a month of surprise policy changes across the globe.

January saw unexpected loosening measures from a handful of central banks including Denmark, India and Singapore against a backdrop of increasing deflationary pressures as crude oil prices continue their descent.

"Judging by price action in the market, there is a real belief the RBA are going to join New Zealand, Europe, Denmark, Switzerland and Canada in easing policy," said Chris Weston, chief market analyst at IG in a note last week, adding that swaps markets are now pricing a 65 percent chance of a rate cut.

The RBA has held rates at 2.5 percent since August 2013.

Many analysts expect the RBA to announce a 25 basis-point interest rate cut at Tuesday's policy meeting to tackle 6 percent unemployment and sliding iron ore prices, one of the country's biggest exports.

Weakening the Australian dollar could be the primary motivation for a rate cut, Oliver added. Governor Glen Stevens stated in December that a level of 75 U.S. cents would be fair value and the currency certainly seems to be headed down that path after depreciating 4 percent in January. If the RBA wants to see a continued broad based decline in the currency's value, it will have to join the easing party, Oliver said.