Markets brace for aggressive monetary response as global trade tensions threaten economic stability
Treasurer Jim Chalmers has flagged the possibility of a 50-basis-point interest rate cut as early as next month, citing mounting market expectations of a forceful Reserve Bank response if global trade turmoil escalates.
Chalmers, speaking in the midst of market instability that has rattled the federal election campaign, said the nation’s economy remained resilient. However, he acknowledged the possibility of slower growth and rising prices due to international tariff disputes.
“But we still do expect Australian GDP to take a hit, and we expect there to be an impact on prices here as well,” Chalmers was quoted as saying in an ABC News report. “I don’t predict or pre-empt those decisions, but the market is certainly now expecting multiple interest rate cuts over the course of the year, beginning in May.”
A Treasury report released Monday assessed the economic risks associated with the United States’ recent tariff moves, warning of broader financial instability.
“Ongoing uncertainty in relation to trade hostilities and associated volatility in financial markets will weaken consumer and business confidence, which will have implications for consumption and business investment, including in Australia,” Treasury officials noted in the Pre-election Economic and Fiscal Outlook.
Last week, the US administration unveiled plans to impose broad-based tariffs ranging from 10% to 50% on nearly all countries. The announcement has already sparked retaliatory actions, including China’s move to place a 34% tariff on American imports.
Despite recent turbulence in equities and currency markets, some analysts maintain that Australia remains in a relatively strong position to navigate the global economic headwinds.
But after consecutive trading sessions in the red, the Australian share market remained volatile, reflecting investor concern over the potential scale of the economic shock.
Chalmers pointed out that the weakening of the Australian dollar on Monday was in line with investor sentiment about future monetary policy moves.
“The next Reserve Bank interest rate cut in May might be as big as 50 basis points,” he said.
While some in the market are factoring in a half-percentage-point cut, most economists expect a more modest adjustment. According to a survey by the Australian Financial Review, 29 out of 40 economists predict a 25-basis-point reduction when the RBA meets on May 20. If implemented, this would be the second cut in 2025, bringing the official rate down to 3.85%.
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
