ANZ: The Exaggerated ‘Crowding Out’ Problem

ANZ note that "concerns that expansionary fiscal policies in Asia will result in a commensurate rise in bond yields have turned out to be misplaced. Year to date, bond yields have declined in most economies in the region despite historically large budget deficits. Monetary accommodation has obviously been instrumental in assuaging bond yields. At the same time, severe retrenchment in economic activity and an improving balance of payments (BoP) has also resulted in substantial slack in the financial system. Apart from an improvement in current account balances, the financial account has benefitted from ultra-loose monetary policy in the US. This slack, in an environment of risk aversion, has been directed into government bonds. We do not envisage any change in these settings until the second half of 2021. In all likelihood, that will be the earliest when the recovery becomes sufficiently strong for it to become leveraged."