MNI RBA WATCH: Bullock Highlights Uncertainty Ahead Of Tariffs

The Reserve Bank of Australia has ample policy space should trade disruption slow global growth, though the direct impact on the economy should be limited, said Governor Michele Bullock, stressing that future easing will hinge on data following Tuesday’s unanimous decision to hold the cash rate at 4.10%.

“Inflation is coming down, unemployment is still relatively low… So we're in a good position there,” Bullock told a press conference following the Board's largely-anticipated hold. “When we went into the pandemic, interest rates were about 1.5%, they're now much higher than that. If it turns out that there is a big growth impact on Australia, we do have room to move.”

Bullock said the RBA’s new monetary policy board had not considered a cut this month, pointing to uncertainty that risked pulling inflation in either direction and highlighting concerns over the tight labour market and risks over consumption, alongside global growth fears. “There's still risks on both sides, but as every month goes by and we get more information, and it's in line with where our forecasts are, then we just get more confident,” she said.  

She downplayed the market’s increasing certainty of a May 20 25-basis-point rate cut – which rose to a 73% probability from 64% last week – noting the Board would evaluate labour and inflation data ahead of any decision. “If we're still on track, and it gives us a bit more certainty then, then we can start to consider when it's appropriate to start lowering rates,” she said.

With U.S. President Donald Trump's administration due to unveil so-called reciprocal tariffs on Wednesday, Bullock said the Bank would look through any immediate price rises driven by duties and would only act if it believed inflation has become ingrained.

CUT NOT DISCUSSED

The RBA’s response to trade disruption would also depend on the exchange rate, she added, noting the Australian dollar would absorb some of the impact of any disruption, and that U.S. tariffs could affect the country’s trading partners over the longer term. (See MNI RBA WATCH: Board To Hold As Election Looms)

 “It also depends what's happening with inflation as well, and that's a little bit indeterminate,” she continued. “If growth slows, but inflation picks up, and then we're in a slightly difficult world.”

Tuesday’s decision follows February's 25bp cut. (See MNI RBA WATCH: Board Delivers Hawkish 25BP Cut) Last month’s statement noted the Board would remain “cautious on prospects for further policy easing,” which it removed from this meeting's statement, a fact Bullock said did not necessarily make a May reduction more likely. 

“There's a number of things now that are playing out since February, there's been a lot more uncertainty introduced in the international context. What does that mean for us? It's not 100% clear, but we are cautious.”

The RBA will have more insight into inflation and a fresh set of forecasts at the May meeting, Bullock continued. “And that will give us the context to decide whether or not it's appropriate to ease rates,” she added.