Bank of America Global Research discusses its expectations for tonight's Australia Federal Budget and RBA board meeting.
"The Federal Budget and RBA board meeting takes place on 6 October. The government's focus is on supporting growth and employment rather than fiscal repair. This means the deficit is set to head above AUD200bn relative to the Treasury's initial AUD185bn projection in July. We expect a mixture of tax cuts (brought forward), increased spending on infrastructure, manufacturing strategies and "return to work" initiatives. We could see a deficit around AUD210-220bn or 11% of GDP," BofA notes.
"We expect the RBA to cut the cash rate target to 0.1% in November along with flagging more commitment to buying government bonds. We see this as part of a coordinated policy response to support the aims of the Budget across the Commonwealth and states. An update to the borrowing program will be released soon after the Budget and we expect gross issuance to remain around AUD240bn. While borrowing will still reach record levels, RBA efforts to contain funding costs and greater demand for AUD debt will temper both curve steepening and AU US spread widening pressures," BofA adds.