Federal Budget Likely to Significantly Impact RBA

For the first time in 7 1/2 years at the helm of Australia’s central bank, Glenn Stevens is playing good cop as the nation’s treasurer turns villain.

Traders are pricing in just a 2 percent chance of an increase in the record-low 2.5 percent cash rate this year, interbank futures show. Joe Hockey will deliver his first budget tomorrow, with spending cuts and new levies to tackle a forecast A$123 billion ($115 billion) shortfall over four years.

“This will be a budget that at the very least prevents the Reserve Bank from raising rates any time soon and eventually may even prompt them into cutting rates if there is a significant tightening of fiscal policy,” said Saul Eslake, chief Australia economist at Bank of America Merrill Lynch in Melbourne and a member of the shadow board of the Reserve Bank of Australia. “Governor Glenn Stevens could be the one playing the role of ‘good cop’ – a relatively unusual one for him.”

Bloomberg

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