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The Reserve Bank of Australia’s (RBA) decision to hold interest rates at 4.1 per cent felt almost secondary during the post-meeting press conference to the impending arrival of US President Donald Trump’s trade tariffs set to hit global economies today (2 April).
RBA governor Michele Bullock said the board decided the leave the cash rate at 4.1 per cent and despite “all the global news and associated uncertainty since the February meeting, [the] domestic economy has evolved broadly as expected”.
“The board has a strategy to bring inflation down and avoid a big increase in unemployment, and with low unemployment, inflation tracking down, we are well positioned for any shocks that might come our way,” Bullock said.
Bullock reiterated the RBA’s long-held stance of keeping inflation under control, however, said that the board is conscious of potential impacts from abroad.
“One of the things we’re cautious about is that policy unpredictability overseas could lead to slower growth. The implications for inflation here, though, in Australia, are less clear,” Bullock said.
“The recent commentary from the Federal Reserve and other central banks is worth noting. They’re all conscious of the impact on global growth, but uncertain about the medium-term inflation implications.
“We’re not on our own in navigating this period of unpredictability.”
According to the governor, the RBA has undertaken modelling “a number of scenarios” in regard to the risk outlook for Australia and has been in contact with its peers across other central banks in small open economies much like our own to “try and make sense of what is going on now and what we can expect in the next year or so”.
When asked if the tariffs had any sway on the RBA’s decisioning, Bullock said that it’s not having a specific impact and that the question lies within “what it might do to activity globally and inflation in Australia as we move on”.
“At the moment, we’re not seeing signs that we’re being impacted by [the tariffs]. What will be important, for us particularly, is what happens with our major trading partners and China,” Bullock said.
“We’ve been thinking about what the response of the Chinese authorities might be, and if they continue to add fiscal support, then it might be that the impact on Australian activity [is there]. It’ll be slow, but it might be relatively muted.”
Bullock said that these tariffs could see a fragmented trade system that does not bode well for Australia’s small open economy, along with slowed global trade growth, rising price levels due to less efficient domestic production and further impacts to long-term productivity.
Ultimately, Australia is less directly exposed in comparison to the US and the impact will depend on reciprocal tariffs from other countries, particularly China.
[RELATED: RBA holds cash rate, cites global uncertainties]
