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Category: Business, Economics and Finance / World Politics / Government and Politics / Money and Monetary Policy / Markets / Economic Trends

Reserve Bank flags potential for further rate cuts, no 'contingency plan' for Trump presidency

Thursday, 22 Sep 2016 11:13:09 | Thuy Ong

The possibility of a president Donald Trump would "surprise" many in the markets. (AFP: Yuri Cortez)

Newly appointed Reserve Bank governor Philip Lowe has flagged the potential for interest rates to fall again, and says there is no "contingency plan" for markets if the United States elects Donald Trump as president in November.

External Link: RBA tweet

In his maiden speech to the House of Representatives Standing Committee on Economics, Dr Lowe said another rate cut would depend on what happens overseas, the next set of inflation data, the labour market and Australia's housing market.

"The market pricing has some probability — 50 per cent probability of a further cut that's possible, it's going to depend on a whole range of factors," Dr Lowe said.

"So certainly there's a scenario where rates would fall again, there are scenarios where they wouldn't need to fall again."

Dr Lowe flagged there were risks in pushing rates lower to push inflation higher, but in doing that, low interest rates could risk pushing up personal and investor debt.

The RBA has an inflation target of between 2 and 3 per cent.

No contingency plan for a Trump presidency

Meanwhile, the possibility of a president Donald Trump would be a "surprise" to many people in financial markets and could be disruptive, Dr Lowe said, particularly at a time when traditional monetary policy is not working as it should.

External Link: Peter Ryan on Philip Lowe

"We don't have a particular contingency plan for that event but we would be watching what's happening in the markets and we have the capability to respond if there was an adverse response," Dr Lowe said.

"The global financial system's been strengthened a lot since the crisis, and what Brexit showed is that it has demonstrated ability to adjust.

"I would expect that that would happen in the US if there was a president Trump and we would all be watching and looking at how things evolve."

Dr Lowe said the economy is adjusting "reasonably well" to transition out of the mining investment boom and that Australia has dodged the worst of the global downturn.

"We had the biggest resources boom in a century, the highest prices of our commodities exports in more than a century and a half and the economy dealt with that," Dr Lowe said.

"It digested this huge amount of capital spending and huge boost to our income without overheating and now we're dealing with the downside of that with growth still being respectable.

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