From an article from the Wall Street Journal (not gated):

  • Paul Brennan, chief Australia economist at Citigroup, said the Reserve Bank of Australia’s new forecasts — which show the economy growing by 3% by the middle of this year — don’t take into account potentially harsh budget cuts. “The budget isn’t factored into the RBA’s forecasts,” Brennan said.
  • depending on the details of the budget, Citi’s Mr. Brennan said he may have to push back his call for the RBA to start raising interest rates in the first quarter of 2015… “The risk to our current view…is slanted toward rates staying unchanged for longer,” Mr. Brennan said.

This view contrasts with that of ANZ last week, which I had here: Australia – ANZ says not to expect a horror budget

And more from bank economists:

Craig James, chief economist at Commsec:

  • The RBA may even revert to its previous easing bias if the budget weakens consumer confidence.
  • But a change in policy would only occur after a lag of several months, (the RBA) will wait to see if any shift in confidence shows up in actual consumer spending.

Tom Kennedy, at JPMorgan:

  • The RBA will need to take a hard look after the budget is released, possibly taking rate increases off the table if spending cuts hit the economy hard.
  • “The budget will add to an already stiff headwind for growth this year and beyond, which will put monetary policy under pressure later this year,” Mr. Kennedy said.