Federal Treasurer Josh Frydenberg’s historic 2020-21 budget and its pro-growth measures will be the main event on Tuesday, which is regarded as a live but low probability meeting for the RBA.

Previous methods of assessing probability were linked to the overnight cash rate at a defined point in time.
The dip to its record low and subsequent yield recovery reflects the call, since rescinded, that Westpac chief economist Bill Evans made for an October cash, three-year bond and term funding facility rate cut to 0.1 per cent. He revised that to November on September 28 “to give the government clear air to sell its budget”.
Still, HSBC, AMP Capital, UBS and Capital Economics have pencilled in October cuts, according to Bloomberg’s survey of forecasters.
The momentum behind further easing was unleashed by deputy governor Guy Debelle’s articulation of the monetary toolkit on September 22, now that yield curve control has been under way for several months and the economy needs more accommodative support to repair the jobless rate and steer inflation to target.
Former Labor prime minister Paul Keating asserted that the Reserve Bank wasn’t doing enough, but rather than cut rates he advocated for more forceful quantitative easing in the style of the Bank of Japan or US Federal Reserve, “explicitly supporting the government”.
Even dovish economists who are unconvinced of the merits of further rate cuts think there is more easing ahead, agreeing the Reserve Bank will do as much as it can to retain its spot on Team Australia.
National Australia Bank chief economist Alan Oster said the fiscal update was more important to the economy. “It’s all about the budget,” he said. Mr Oster has pencilled in easing in either October or November, ascribing almost no importance to at which meeting it might happen.
“I’m assuming they’d be targeting the three-year bond at 10 basis points,” he said. “For me, monetary policy, basically yeah they’ll do anything they possibly can to help.”
NAB’s expectation is that the cash rate and term funding facility are also reduced to 0.1 per cent, and longer-dated yields of five and 10 years are introduced to the quantitative easing target.
“The idea the three-year is a magical target is not true,” Mr Oster argued. “It’s a cheap way of doing QE, if the market reacts they don’t have to spend it.”
If in fact November is the Reserve Bank’s preferred timing, NAB expects the text of the policy statement will have a stronger easing bias than the last statement.
In September, the Reserve Bank reminded the market it “continues to consider how further monetary measures could support the recovery”. That took on greater meaning with Dr Debelle’s speech.