SYDNEY, Sept 20 (Reuters) - Economists at Citi on Friday joined Australia's major banks in predicting a third interest rate cut by the country's central bank in October, citing more spare capacity in the labour market and a smaller chance of fiscal support in the near term.
Financial futures 0#YIB: are now pricing an 80% chance of cut by the Reserve Bank of Australia (RBA) in October to a record low 0.75%, up from a 50-50 probability before data out on Thursday showed the country's unemployment rate had increased to a one-year high of 5.3% in August.
"We previously said that a move higher in the unemployment rate to 5.3% or higher could bring forward rate cut timing," Citi economist Josh Williamson said in a client note. "Fiscal policy stimulus isn't coming any time soon."
Thursday's data also showed that measures of underemployment had edged up, indicating a rise in the number of people who are in work but want more hours. led the Commonwealth Bank of Australia CBA.AX to bring forward its forecast rate cut by a month to October, joining Westpac WBC.AX and ANZ ANZ.AX . National Australia Bank is still predicting a November move.
An October cut would follow two back-to-back cuts in June and July to 1%.
Also on Thursday, Australia's centre-right government announced the budget was in balance for the first time in 11 years and a surplus next year was all but certain. The government has repeatedly said it is not prepared to significantly boost spending to revive growth and inflation. said "early evidence" indicated that household saving would continue to oustrip spending amid ongoing low wages growth, rising income taxes and falling consumer sentiment.
He also cited an increase in global downside risks for bringing forward his rate cut call, noting a recent jump in oil prices could temper household spending while slower growth in China was a major overhang for Australia's export-heavy economy.