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West Australian
5 days ago
- Business
- West Australian
Jackson Hewett: Is the RBA going to cut rates? Trump's tariffs raise economic risks
The Reserve Bank is highly tipped to cut interest rates at 2.30pm on Tuesday and not just because local spending is soft or inflation's easing. As the RBA Board enters the second day of deliberation, they'll be sweating on US President Donald Trump's fresh round of tariffs including 25 per cent on key Australian trading partners Japan and Korea. A messy, drawn-out trade war was a key concern at the last RBA meeting in May, something Assistant Governor Sarah Hunter said could 'structurally alter the world economy'. At its last meeting, the RBA ran through a bunch of scenarios: one where things stay mild, one where the worst is avoided, and one where a full-blown trade war sends everything south. That worst-case scenario includes higher prices for imports, broken supply chains, nervous businesses pulling back on investment, and a hit to confidence across the board. With components of complex goods like cars sourced across multiple countries, the danger is tariff-induced bottlenecks, pushing up prices at the same time as global demand is going soft. That's the kind of squeeze central banks hate: weak growth and rising costs. And then there's the uncertainty. It's not just what tariffs are in place, it's the fact that no one knows what's coming next. 'There is ample research showing that higher uncertainty can lead to declines in investment, output and employment,' Ms Hunter said in June. When things are this unpredictable, businesses sit on their hands. Some of the market reaction to Trump's tariff spree has eased since April's collapse, but the RBA knows it won't take much for investors to get spooked again, and that could feed straight into tighter financial conditions here. The RBA has enough evidence to suggest Australia needs an interest rate shot in the arm. The Commander Chaos in Chief has thrown a new layer of concern into the mix.
Yahoo
26-03-2025
- Business
- Yahoo
'Overwhelming' reason RBA should cut interest rates next week: 'Fundamentally supportive'
While most eyes have been on the Federal Budget and the solid contribution it is making to support the economy whilst keeping inflation under control, there has been little focus on the RBA Board, which meets next Tuesday to consider what to do with interest rates. This lack of focus is missing an important element for economic policy, given the case for an interest rate cut is overwhelming. Since the last RBA meeting on February 18, where interest rates were cut for the first time in this cycle, there has been a run of economic news that is pointing to the need for a further interest rate cut, preferably as soon as next week. Sign RBA will cut interest rates again in win for mortgage holders: 'Six months faster' Centrelink blow for millions on JobSeeker, Age Pension as federal budget denies cash boost CBA, Westpac, NAB confirm interest rate blow for Aussie savers ahead of RBA call The latest inflation result was stunning. Annual inflation dropped to 2.4 per cent in the year to February, making it seven consecutive months that inflation has been in the 2 to 3 per cent target. The annual trimmed mean inflation rate fell to 2.7 per cent and it has been in the target band for three interest rate settings still oppressive, on inflation grounds alone, the case for an interest rate cut is strong. Under the stewardship of Governor Michele Bullock, the RBA Board has said, explicitly, that it will focus on incoming data when considering its interest rate decisions. Since the February 18 rate cut, the overwhelming tone and flow of economic news that the RBA will take into account has been fundamentally supportive of a further interest rate cut. Here is a snapshot of key data that has been released since February 18 that will be critical for the RBA Board's deliberations: GDP growth rose a moderate 0.6 per cent in the December quarter for an annual increase of just 1.3 per cent. Growth has edged up but is still weak. The monthly data showed annual inflation at 2.4 per cent in February, while the annual trimmed mean inflation rate was 2.7 per cent. Employment fell by 53,000 in February after a tepid rise of 30,000 in January. The unemployment rate rose from 3.9 per cent in November, to 4.0 per cent in December and then to 4.1 per cent in January and was steady in February. Wages growth continued to slow, rising just 0.7 per cent in the March quarter for an annual rise of 3.2 per cent. Wages growth has cooled from a peak of 4.2 per cent in late 2023. Wages are imparting downside risks to future inflation. Retail spending data showed a rise of 0.3 per cent in February after falling 0.1 per cent in January. Bank data for March points to further weakness, although this may be related to the temporary effect on spending due to Cyclone Alfred. Building approvals for dwellings maintained upside momentum rising 6.3 per cent in February to lock in 11 straight months of increases in trend terms. This is one area of strength in the economy, albeit from a low starting point. House prices have edged up 0.5 per cent since the last RBA meeting, reversing a three-month period where prices were flat to slightly lower. The Australian dollar was hovering around US63 cents at the time of the last RBA meeting, exactly where it is now. At the same time, the momentum of the global economy has been broadly as the RBA would have anticipated. There is a clear negative impetus from the US tariff rollout while a raft of central banks have continued to cut official interest rates, many to levels well below the 4.10 per cent cash rate prevailing in Australia. Suffice to say, only moderate economic growth, well-contained inflation and yet more signs of a cooling labour market should be the focus of the discussion about interest rate cuts. The upcoming Federal election should not be an issue that enters the RBA's deliberations. Adjusting interest rates according to economic need is all that is required of the RBA in to access your portfolio
