Australian indicators point to a stable economy yet the pressures emitted from Europe may convince the Reserve Bank of Australia (RBA) to implement another rate reduction when its board reconvenes today.

The prevailing sentiments, analysts said, is for the RBA board to announce a second cut on the cash rate in as many months despite the traction that the local bourse has been displaying in the past few days and the considerable grosses that Australian firms have been reporting so far.

Overall, the domestic economy consistently registers growth, at an average pace of 3.5 percent during the past six months, but dwindling business stocks also signal that production among firms, mining and non-mining, gradually retreats.

While the Australian Bureau of Statistics (ABS) has reported that the national economy has posted earnings of up to 4.5 percent as of September, the outlook for the initial months of 2012 is at best cautious, with the world on its toes while the Euro crisis unfolds its full form.

According to Westpac economist Huw McKay, the situation in Europe is almost headed to recession that the RBA may opt on Tuesday to push down the policy rate from 4.5 percent to 4.25, further buffering what it termed last month as a more neutral rate akin to the present economic conditions, from global and domestic perspective.

A survey conducted by the Australian Associated Press showed that 50 percent of economists believe that a rate cut will be seen today if only to prepare the local situation on what will happen in Europe.

"There is no easy way out for Europe if you are looking to avoid either a substantial debt restructure or breaking up the region," McKay told The Australian.

The rate reduction, according to Matthew Johnson of UBS, is almost certain that the financial markets seem to be functioning on that basis, a reality, he adds, that will be followed by more cut backs in the months ahead.

It is likely that the cash rate will be pegged at 3.25 percent by next year, which economists said should replicate the level seen during the height of the global financial crisis in 2008.

Judging from what the ABS has reported on Monday, the Australian economy currently stands on stable grounds but Macquarie Group senior economist Brian Redican believes that rate cut will be seen today because "leading indicators show that strength will not be sustained into early 2012."

As claimed by many companies, including giant miners BHP Billiton and Rio Tinto, source of funding has become more difficult and costly at the same time, a ripe situation, Redican said, that only fuels plunging confidence in the business environment.

"Things are worse than they were a month ago, or even two weeks ago," Redican stressed, citing too that the situation in Europe and significant preparations being made by the economic managers of China, further buttressing impressions that a global slowdown is imminent.