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The RBA governor has noted the economic fallout from US tariffs but said it is premature to forecast their impact on the cash rate trajectory.
The governor of the Reserve Bank of Australia (RBA), Michele Bullock, has said it’s too early to determine what the path for interest rates will be amid growing uncertainty caused by the US trade war.
Tariffs have dominated economic discourse in recent weeks, after US President Donald Trump announced a raft of global tariffs at the beginning of the month before quickly moving to a 90-day pause for most countries except China, following days of market turmoil.
The uncertainty has prompted some economists and lenders, including Australia’s major banks, to revisit their thinking on the cash rate trajectory and when the next cut might occur.
Speaking at the Chief Executive Women annual dinner in Melbourne last Thursday (10 April), Bullock offered a glimpse into how the RBA sees the current state of the economy and financial markets.
While the governor didn’t provide any specific forward guidance on how the tariff uncertainty could impact rate-cut decision, she did note that the RBA is not seeing the “same degree of impact” as it did during previous global economic events, such as the global financial crisis of 2008.
Bullock also said the view of the RBA is that the Australian financial system is strong and well-placed to absorb shocks from abroad.
“We are closely monitoring financial market conditions here and overseas – as we always do,” she told the CEW dinner.
“We continue to engage closely with our fellow financial regulators in Australia, and our central bank counterparts overseas, sharing information and working together.
“We are carefully considering several factors, including the response of our trading partners, additional counter-responses from the US, the response of our exchange rate, and adjustments in other financial markets. A key focus for us is how all this uncertainty is affecting decisions made by households and businesses in Australia.”
Bullock also said the RBA’s analysis of the market was building a “fuller picture of the possible impacts” ahead of its next monetary policy meeting, due to take place on 19–20 May.
“We are mindful of not adding to the uncertainty, and to that end, it’s too early for us to determine what the path will be for interest rates,” Bullock said.
“Our focus remains on our dual mandate for price stability and full employment.”
A moveable feast
Several lenders and economists had updated their forecasts for the central bank’s rate-cutting strategy on the back of Trump’s tariff announcements, including National Australia Bank (NAB).
Last Thursday, the major said it expects the RBA to cut by 50 bps in May, followed by 25 bps in July, August, November and February, which would take the cash rate to 2.6 per cent.
NAB group chief economist Sally Auld and head of Australian economics Gareth Spence, who authored the monetary policy update, said they expected a larger policy response may be required to keep activity on track amid “headwinds from the global environment”.
The economists said: “Much has changed since the RBA Board last met in early April. Risks to both global and domestic growth have shifted to the downside. Against this backdrop, a restrictive policy stance in Australia is no longer appropriate, in our view.”
Commenting on the impact of tariffs, the NAB economists said: “Though we expect the direct impact of tariffs on Australia to be small (with the US a relatively small goods trading partner), we are not immune from the indirect impacts.
“For Australia we see the key impact on activity being driven by three channels: first, consumer and business confidence; second, potential national income and wealth impacts from weaker commodity prices; and third, volatility in financial markets.
“Managing the risks associated with each of these channels argues for a shift to a more pre-emptive policy response by the RBA.”
Meanwhile, AMP chief economist Shane Oliver also flagged a change in his thinking at Election 2025, a Momentum Media event in Sydney on Thursday (10 April).
“I think there is a 50 per cent chance – probably a little bit less this morning – that it could be a 50 basis point cut at the May meeting,” Oliver said.
“But I think we will see a cut in May and there’s a good chance we will see several more cuts this year. We were thinking two but it could be four given the damage caused [by tariffs upheaval].”
Meanwhile, ANZ had moved its rate forecast the Friday prior to the pause being announced (4 April), predicting 25-bp cuts in May, July, and August.
ANZ senior economist Adelaide Timbrell told The Adviser the major lender was still comfortable with this forecast, saying that expected cuts would “be enough for the Reserve Bank to feel comfortable adding some insurance easing going from what we would consider the current cash rate to be unambiguously restricted, to a cash rate of 3.35 per cent by August, which we would consider to be mildly stimulatory”.
Westpac and Commonwealth Bank (CBA), which were both forecasting a rate cut in May, both said they would not be changing their outlook in response to recent tariff uncertainty.
[Related: Tariff turmoil reshapes cash rate outlook]
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