Reserve Bank flags US fiscal deficit risks
Make us a preferred source
Make us a preferred source on Google
The news: At its latest monetary policy meeting, the Reserve Bank board discussed the impacts of the US election on the economy, with a wide range of possible scenarios with uncertain impacts on Australia and the global environment.
But the board, which met just before the election result was announced, did determine that regardless of the outcome, US fiscal deficits "were forecast to be large, making sovereign debt markets more sensitive to adverse shocks over time".
The numbers: The RBA kept rates on hold at 4.35% at its November meeting, flagging that underlying inflation remained too high at 3.5% and while it was declining slowly it was not expected to be back in the target band until 2026.
The board maintained similar language to the prior meeting, with nothing ruled "in or out".
The context: One of the concerns for the Reserve Bank is that the range of risks from abroad could result in the central bank's forecasts being "materially wrong". This would have knock-on effects for monetary policy.
Among the concerns are possible major changes in the US from the presidential election, China's stimulus package differing from expectations in size or composition and the general risk of global government debt growing unsustainably.
As of this meeting, members were not yet factoring in these events due to the range of unknowns and unpredictabilities.
What they said: The board said it discussed the "forward-looking" factors that could affect the global outlook.
"One of these was the possibility of a marked change in US economic policy following the US presidential election, the outcome of which would be known after the meeting," the minutes said.
"Members noted that the effects of the candidates’ policy proposals were difficult to quantify and would also depend significantly on the outcome of the Congressional elections, the extent and speed of implementation, and on how other countries respond.
"A wide range of alternative outcomes was possible; some scenarios involved significantly lower global growth and increased inflationary pressures, but the implications of others for global growth were more uncertain.
"The implications for the Australian economy of the scenarios with limited global reaction could ultimately be quite modest because of the potential for trade flows to be redirected, as had been observed in the past."
The source: Reserve Bank monetary policy meeting minutes
