* Australia 2018/19 budget deficit A$690 mln vs A$4.2 bln f'cast
* Government committed to budget surplus in 2019/20
* Aug unemployment rate edge up to 5.3% from 5.2% in July
* Rates futures price in 76% chance of an October rate cut
By Swati Pandey
SYDNEY, Sept 19 (Reuters) - Australia's government said on Thursday its budget was in balance for the first time in a decade and a surplus this year was all but certain, though fiscal stimulus to boost jobs and growth was still seen unlikely for now.
The budget deficit in the 2018/19 fiscal year-ended June 30 was A$690 million ($470 million), effectively 0% of gross domestic product, far better than the forecast in its April budget for a A$4.2 billion shortfall, or 0.2% of GDP. surplus for the current year will be "an improvement" on its earlier forecast of A$7.1 billion, Treasurer Josh Frydenberg added, but did not provide a new forecast.
The cheer over the windfall was overshadowed by separate data, however, also out on Thursday that showed Australia's unemployment rate at a one-year high of 5.3%, reinforcing expectations of more central bank stimulus. Australian dollar AUD=D3 skidded to a two-week low under $0.6800 as traders saw increased chance of a rate cut in the absence of fiscal stimulus anytime soon.
Financial futures are now predicting a 76% chance of a cut by the Reserve Bank of Australia (RBA) to 0.75% at its Oct. 1 policy meeting, from a 50-50 probability before the data. Another reduction to 0.5% is now almost fully priced-in for February. 0#YIB:
"The government needs to be responsive to the economy's needs," CommSec chief economist Craig James said. "A balanced budget in the next year may be more appropriate than producing a big surplus in the current fluky economic times."
Despite two back-to-back easings by the RBA there are few signs of revival outside of the housing sector. in the country's A$1.9 trillion economy ($1.3 trillion) slowed to a decade-low last quarter, inflation has undershot the RBA's 2-3% target for almost 3-1/2 years and consumer spending has been sluggish in recent months.
The RBA has said it would like to see the unemployment rate fall to around 4.5% to help generate wage pressures. That looks like a tall order, as the jobless rate has been edging up since it fell to 4.9% in February, the lowest since 2008.
"A higher unemployment rate suggests that stronger wage growth is unlikely for the foreseeable future," said Callam Pickering, economist for global job site Indeed.
"A cut at either their October or November meetings seems all but certain at this stage," he said in a note.
FISCAL STIMULUS
RBA Governor Philip Lowe has repeatedly laid out the importance of government spending and structural reforms to spur economy-wide growth and inflation, having already eased twice this year.
But the conservative government of Prime Minister Scott Morrison has refused to budge from its stance. Earlier this month, Treasurer Frydenberg reiterated the government's commitment to the "non-negotiable" goal of a budget surplus in 2019/20.
"This would frustrate the Reserve Bank," said Kaixin Owyong, Melbourne-based economist at National Australia Bank.
A growth slowdown together with Thursday's weak unemployment number led economists at Commonwealth Bank of Australia CBA.AX to join their counterparts at Westpac WBC.AX in forecasting an October policy easing.
CBA does not expect the unemployment rate to improve this year despite expectations of further policy easing by the RBA.
"We have long held the view that fiscal easing would be the better policy option than further monetary policy easing, especially with the RBA within reach of the lower bound," CBA economist Belinda Allen wrote in a note.
She listed several policy measures that could be employed including bringing forward "shovel-ready" infrastructure projects as well as early tax cuts for households and changes to income tax brackets.
"There is considerable room for fiscal stimulus to compliment easier monetary policy that has been put in place since the RBA easing cycle commenced in June," Allen added.
Investors will next focus on a Sept. 24 dinner speech by RBA Governor Lowe that might further shape market expectations for the Oct. 1 policy meeting. ($1 = 1.4715 Australian dollars)