Investors and businesses are pushing ahead with talks to save the Australian dollar and reduce the impact of a fall in the global economy.
But the Reserve Bank has warned that a “trend of high volatility” would be detrimental to the Australian economy and that a significant fall in commodity prices could push the dollar lower and further weaken the economy.
Key points:The Reserve Bank said there were some uncertainties around a “sharp rebound” in commodity-linked growth in the second half of this year, and a drop in commodity exports and investment would be “unlikely”Ahead of the December meeting, the Reserve said it was “not at all clear” what impact a major fall in oil prices would have on the Australian marketIn a separate note, the RBA said there was “some uncertainty” around a sharp rebound in commodity growth in Australia, but a decline in commodity export and investment was “unusual”.
“A sharp rebound is unlikely to occur, but the RSB is not at all sure what impact such a sharp re-offend on commodity-driven growth in an economic environment of high uncertainty would have,” it said.
The RSB also said a sharp fall in resource exports and investments would be unlikely, and that “an overall decline in demand for goods and services in the economic outlook is not likely”.
“In contrast to commodity prices, which remain fairly high relative to their historical average and remain somewhat more resilient than the broader Australian economy, the commodity outlook appears more uncertain, reflecting uncertainty about the current global economic environment,” it added.
“A decline in the supply of goods and labour for export would be expected to be of minimal impact, with export growth remaining largely stable in both nominal and inflationary terms.”
Inflation, already at an all-time low, could rise further, the note said, but it did not predict that the economy would be able to absorb that increase in inflationary pressures.
“Inflation is expected to remain below its pre-crisis peak, reflecting a moderate accommodation to rising prices, and the Federal Reserve has been supportive of this accommodation.
However, the pace of inflationary adjustments over the coming months will be significantly slower than in recent years,” it noted.
The Australian dollar was down more than 2% to $US0.9975 after hitting a four-week high of $US1.1045 earlier this month.
It is down nearly 9% since June, when the RBS warned about a “significant” decline in global economic activity.