National Australia Bank, Citi latest to predict October cash rate cut

SYDNEY (Reuters) - National Australia Bank economists on Friday became the latest to join a growing pool of analysts predicting a third interest rate cut by the country’s central bank in October, citing slowing economic growth and a smaller chance of fiscal support.

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.

An October cut would follow two back-to-back cuts in June and July to 1%.

NAB brought forward the next RBA cut to October, with a follow-up move in December, senior economist Gareth Spence wrote in a note, from previous predictions for November and February.

Earlier in the day, Citi economist Josh Williamson pulled forward his call to October, from November previously.

“We previously anticipated some further support from fiscal policy but now believe this is unlikely in the near term,” NAB’s Spence added. “With monetary policy involving longer lags, we think the urgency to lower rates sooner has increased.”

On Thursday, Commonwealth Bank of Australia CBA.AX brought forward its forecast rate cut by a month to October after the labor force data.

With CBA and NAB's revision, the "big four" Australian banks including Westpac WBC.AX and ANZ ANZ.AX are all predicting a cut in October.

Also on Thursday, Australia’s center-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.

Citi’s Josh Williamson said “early evidence” indicated that household saving would continue to outstrip 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.

Reporting by Swati Pandey; Editing by Jane Wardell and Sam Holmes