Economists tip the deteriorating global economy, especially in the major export market of China, combined with a weak Australian household sector will force the RBA into even more aggressive rate cuts.
The market has priced in a further 150 basis point reduction by March, from its current level of 4.25 per cent.
NAB chief economist Alan Oster said the situation continued to worsen as the global recession spread into the Asian economies.
"All of the key indicators seem to be going clunk in Japan and China, which is making me even more nervous," Mr Oster said.
NAB is forecasting the RBA will cut rates by 75 basis points in February and follow it up with a further reduction of 50 basis points in March to 3 per cent.
Since the global financial crisis heated up in September, the RBA has cut interest rates by 3 per cent from its previous 13-year high of 7.25 per cent.
Mr Oster said the latest RBA minutes, released yesterday, showed the bank was determined to stay ahead of the downturn and that slashing interest rates by 1 per cent earlier this month was aimed at alleviating the need for a January meeting.
The central bank doesn't normally meet in January, postponing decisions until its February 3 meeting.
At the December meeting RBA governor Glenn Stevens recommended cutting the cash rate to boost household spending, citing the bleak global economic outlook.
The RBA's worries about the health of the Australian economy were validated with the latest housing starts released yesterday, which posted their sharpest decline in eight years during the September quarter.
The Australian Bureau of Statistics reported a 10.7 per cent drop in new property developments.
Citigroup managing director of economics Paul Brennan said the particularly large falls in new housing starts in New South Wales, Queensland and Western Australia were "close to past recession" levels.
"Consequently, while the RBA board minutes noted there was significant economic stimulus now in the pipeline, we continue to expect the RBA to cut further to 3 per cent by March next year," Mr Brennan said.
