Fresh forecasts: Bullock stresses a point at a news conference in Sydney. The central bank governor calls for patience as Australian policymakers try to come to grips with how the new US tariff regime might affect global demand and supply. — Bloomberg
SYDNEY: Australia’s central bank expresses caution over future interest rate cuts, saying May would be an “opportune time” to revisit policy settings, according to minutes of its April meeting that was held just before US President Donald Trump’ unleashed a wave of tariffs that have roiled global markets.
The Reserve Bank of Australia’s (RBA) board reiterated that it was not yet possible to determine the timing of the next move in rates, according to minutes of the March 31-April 1 meeting released in Sydney yesterday.
The board concluded that it was appropriate to leave the benchmark at 4.1%, having cut in February for the first time in four years, in the absence of any significant data to alter the outlook for Australia’s economy.
The RBA’s April meeting occurred just before Trump’s “Liberation Day” tariffs sent a shockwave around the world and caused severe market ructions.
Concerns about the potential impact from the announcement explained the cautious note in the minutes.
However, the RBA flagged that a move may come as soon as next month.
By the May 19 and 20 meeting, the board will have additional data on the labour market, inflation, household spending, a fresh set of staff forecasts as well as “further information about the likely evolution of global trade policies”, the minutes showed.
“Collectively, this information would have a considerable bearing” on the decision, it said.
The bank also assessed that a surprise drop in employment in February was more likely a statistical aberration than a turning point in labour demand.
Financial market pricing implies some chance of an outsized 50-basis-point cut next month and traders are betting the RBA will lower borrowing costs at least three more times after that this year.
The board’s discussion on the implications for Australia of global tariff settings showed a key factor would be how the Chinese authorities responded.
“Importantly, the board would need to monitor closely the implications of global developments for Australian inflation,” the minutes showed.
Last week, governor Michele Bullock called for patience as policymakers try to come to grips with how the new US tariff regime might affect global demand and supply.
Bullock expects market and economic volatility will persist and reiterated that Australia’s financial system is strong and well-placed to absorb shocks from abroad.
The minutes showed that risks to the global outlook were tilted to the downside. Board members agreed that a significant increase in tariffs or other trade restrictions could “materially disrupt” global trade and lead firms and households to reduce spending.
Domestically, Australia’s economy is entering the tariff uncertainty era from a position of strength – gross domestic product growth picked up in the last quarter of 2024, unemployment is still low and a monthly inflation indicator is now within the RBA’s 2% to 3% target.
At the same time, consumer spending has lifted from last year’s lows while nationwide housing prices hit a record high in March.
Australia is in the middle of a tight election ahead of a vote on May 3.
Based on current polling, the most likely result is a hung parliament in which neither of the two major parties holds a majority.
In such a case, they would need to negotiate with independent lawmakers to form government.
The minutes showed the board also discussed the pace at which the RBA’s bond holdings are running down, reiterating there were no monetary policy implications from this.
However, members agreed to seek the views of the newly formed governance board on the risk and return implications from the scale and maturity of the bond programme. — Bloomberg
