Australia's leading central banker stated on Thursday that it was premature to make decisions regarding interest rate movements, emphasising the need for patience as they evaluate the economic effects of US trade policies that have disrupted global financial markets.
In her speech in Melbourne, Reserve Bank of Australia (RBA) Governor Michele Bullock cautioned about potential market and economic volatility ahead, while reassuring that Australia's financial system is well-positioned to handle external shocks.
On Saturday, US President Trump imposed a baseline 10% tariff on all imports but delayed plans to implement significantly higher tariffs on major trading partners following a sharp drop in stocks and bonds, Reuters reports.
However, Trump escalated his trade conflict with China, Australia's largest trading partner. In retaliation, Beijing has responded to each tariff measure, with a hefty 125% tariff now in place on Chinese imports.
“It will take some time to see how all of this plays out and the added unpredictability means we need to be patient as we work through how all of this could affect demand and supply globally,” Bullock stated.
Bullock noted that the current market reaction hasn’t reached the intensity seen during past crises like the 2008 financial meltdown.
The RBA kept interest rates unchanged at 4.1% last week, opting to wait for clearer data to confirm that inflation is steadily returning to its 2–3% target range. The central bank remains cautious, concerned that a tight labour market could reignite inflationary pressures.
Interest rate swaps show that traders have fully priced in a 25-basis point rate cut from the RBA for May, with some even betting on a more aggressive 50-basis point move. For the rest of the year, markets are forecasting a total of 115 basis points in rate cuts.
“We are mindful of not adding to the uncertainty, and to that end, it’s too early for us to determine what the path will be for interest rates,” Bullock said.
“There are a lot of moving parts. Our focus remains on our dual mandate for price stability and full employment,” she added.