According to Deputy Governor Andrew Hauser, the direct impact of such tariffs on Australia is expected to be limited, given the relatively small volume of Australian exports to the United States. However, he acknowledged that indirect effects could arise, depending on global reactions to these policies.
Hauser highlighted that much of the uncertainty lies in how China’s economy might respond to US-imposed tariffs, given its significance to Australia as the country’s largest trading partner. The ripple effects on global supply chains could create price volatility, but it remains unclear how these factors would manifest in the Australian economy.
The RBA has assured Australians that it is prepared to act if inflationary pressures emerge from such global developments. In his speech at the Australian Business Economists’ annual dinner, Hauser reaffirmed the Bank’s commitment to closely monitoring economic conditions and adjusting monetary policy as necessary.
For now, the RBA has maintained its cash rate at 4.35 per cent for the ninth consecutive meeting, citing a mixed economic outlook. Recent data has shown weaker-than-expected economic activity, with softer growth in output and easing wage pressures. Nonetheless, the Bank remains cautiously optimistic about inflation declining gradually over the next year. Governor Michele Bullock underscored that while progress has been made, the fight against inflation is not over.
Economists have interpreted recent signals from the RBA as dovish, suggesting the possibility of interest rate cuts sooner than initially anticipated, potentially as early as February 2025. However, most analysts still expect a May timeframe for any monetary easing. The RBA’s stance reflects a balancing act between addressing domestic economic softness and preparing for potential global shocks.
These factors assume the Australian economy doesn’t face more shocks over the next 12 months. Considering the volatile state of global affairs it’s possible the economy could face more unwelcome developments. For now, the bank is focusing on keeping the economy as stable as possible so it’s in the best possible position to absorb new shocks.
Regardless, the RBA is encouraging Australians not to worry themselves too much over a potential trade war because any impact is likely to be limited. They can also rest assured that the RBA is keeping a close eye on events and is prepared to act as necessary if and when the need should arise.
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