Global tariff uncertainty adds pressure to rate decisions
The Reserve Bank of Australia (RBA) faces a more complex policy landscape as global markets respond to the United States’ rising use of trade tariffs, according to a bank economist.
While Australia’s direct exposure to the US tariffs remains minimal — only a small portion of exports are sent there — the broader implications through its main trading partners could still be substantial.
“Australia is one of the least exposed to tariffs directly… so it will be indirectly, via our major trading partners, that we are likely to be most impacted,” said Bendigo Bank chief economist David Robertson (pictured above).
He added that the Reserve Bank of Australia (RBA) may need to adjust its approach as the economic effects of these tariffs spread through global trade channels.
Robertson, in Bendigo Bank’s Economic Update, noted uncertainty about how these measures will affect global inflation and demand, especially whether rising costs will be absorbed domestically in the US or contribute to broader economic weakness.
“Conversely, will global demand slow down sharply, meaning all the more need for RBA rate cuts?” he said. “Recent forecasts from the RBA and the OECD do show slower growth ahead in the US and to a lesser extent the global economy, but not at this stage a slowdown for our major trading partners.”
The global response to the US trade stance remains a key variable. Countries could retaliate with their own tariffs or shift toward other trading partners, which may influence Australia's economic trajectory.
The RBA is expected to lower the cash rate at its May 20 meeting, with inflation data due at the end of April likely to support the decision. A second cut could follow in August, but further easing may be limited.
Robertson said the RBA is likely to remain cautious due to three stabilising factors: strong labour market conditions, ongoing international uncertainty, and increased public spending. These factors could reduce the need for aggressive rate cuts, allowing the central bank to move slowly.
Safe haven assets and property rebound
Despite unstable market conditions, gold has emerged as a standout, with prices near US$3,150 per ounce — up 40% over the past 12 months, and 45% higher in Australian dollar terms.
“Amid all this uncertainty, volatility on financial markets is high, but the star performer on the markets has been the safe haven of gold,” Robertson said.
In housing, prices showed signs of recovery in March, lifting 0.4%. That brought the first-quarter gains to 0.5% in capital cities and 1.4% in regional areas.
“This suggests the dip we saw in the last quarter of 2024 is behind us,” the economist said. “Good news for some, but not for housing affordability.”
Budget reflects stronger fiscal position
According to Robertson, the latest federal budget showed few surprises, but signalled a healthier fiscal outlook.
“We did move from surplus to deficit, although the deficit for FY25 was 1% of GDP, followed by 1.5% next financial year,” he said. “Our debt profile remains sound in the short term… keeping our AAA credit rating secure.
“This is a much stronger debt position than forecast coming out of the pandemic, but will require greatly improved productivity in the economy to afford necessary spending in the medium term.”
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