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RBA Governor Michele Bullock Signals Potential Rate Cuts to Support Growth if Trump Tariffs Hurt the Global Economy

RBA Governor Michele Bullock says she is prepared to protect economic development with rate cuts, despite the fact that Donald Trump's impending trade war might destroy the global economy and affect Australia.

If growth is stifled by US President Donald Trump's impending global trade war, the Reserve Bank of Australia may lower interest rates to protect the Australian economy.

Following the board's decision to maintain the official cash rate at 4.1%, RBA Governor Michele Bullock acknowledged the possible defensive measures during a press conference in Sydney on Tuesday afternoon.

"Interest rates were around 1.5% when the pandemic struck," she stated. “They’re now much higher than that.

"We do have the option to adjust the exchange rate to support Australia if it turns out that there is a significant growth impact." It does depend on what transpires, though.

Rate reductions typically spur economic growth by making borrowing money more affordable, which in turn encourages investment and consumption.

As central bankers worldwide attempted to assess how the US tariffs might affect inflation and global GDP, Ms. Bullock brought attention to the reduction.

Despite rumors that only 10 to 15 countries will be impacted, President Trump has stated that all countries will be included in his reciprocal tariff plan on April 2.

To date, he has raised duties on all commodities entering the US from China and placed levies on steel, aluminum, and the automobile sector.

Early next week, tariffs on Canada and Mexico are scheduled to go into effect.

With low unemployment and declining inflation, Ms. Bullock claimed that Australia was well-positioned to handle the uncertainties brought on by President Trump's tariff strategy.

However, she cautioned that it would be "challenging" to live in a "stagflation" situation, where inflation increases while the economy declines.

"We are in a slightly challenging world if inflation increases while growth slows down."

Ms. Bullock stated that although the board had not yet noted any effect of the impending tariffs on Australian inflation, they would "watch and wait and see what happens."

Given Trump's protectionist policies and their inflationary effects, Journalists questioned Ms. Bullock on whether market projections of three rate cuts between now and mid-2026 were still relevant.

According to Ms. Bullock, the response was contingent "on a number of things."

She stated, "It depends on how other countries respond."

Do they retaliate by imposing comparable tariffs? Thus, it goes without saying that global supply networks and industrial efficiency across different economies will be affected.

Additionally, a lot depends on what China does. In addition to being our most significant trading partner, it will also be significantly impacted from a business standpoint.

"And the Chinese government has stated that they will ensure that their economy continues to grow, at least for the time being."

She stated that China's growth target remained at 5%.

"There will be some impact on our growth if China keeps going in that direction, at least according to our analysis right now," Ms. Bullock stated.

However, it won't be as severe as what some other nations would experience under similar conditions.

According to Ms. Bullock, the Board is "progressively gaining more confidence" in its efforts to bring inflation back to the goal range of 2-3 percent in a sustainable manner.

"Although we don't have complete confidence, if you look at our projections and how inflation is tracking in comparison to projections, we're actually doing pretty well," she stated.

She added that the Board did not predict that Australia will experience a recession in the upcoming year.

The RBA acknowledged in its monetary policy statement on Tuesday that President Trump's threat to increase the tariffs on Australia and its trading partners had a significant influence on their choice.

According to the board, "recent U.S. tariff announcements are having an impact on confidence globally on the macroeconomic policy front, and this would likely be amplified if the scope of tariffs widens or other countries take retaliatory measures."

"There are also significant geopolitical uncertainties."

"Global activity is anticipated to suffer as a result of these developments, especially if households and businesses postpone spending until the outlook is more clear."

The board also mentioned concerns about Australia's inflation rate being unstable.

However, the RBA board stated that inflation might go either way.

"Although many central banks have loosened monetary policy since the year began, they have grown more aware of the changing risks as a result of recent developments in international policy."

Money markets stated that there was just a 20% possibility of a cut in April, thus the hold was mostly anticipated.

Before making a decision, the RBA will consider quarterly jobs and inflation figures, which are expected to be released at the end of April, according to independent economist Saul Eslake.

According to him, "the new monetary policy committee will be waiting for more data on the extent to which inflation has continued to fall, particularly its preferred measure of 'underlying' inflation."

Although it would be improbable for the RBA to lower interest rates during an election, Shane Oliver, chief economist at AMP, stated that the odds were not in favor of two rate cuts in a row.

"I believe that the RBA is being cautious. When they made cuts back in February, they made it apparent that they were hesitant to make any more because they were still worried about a tight labor market and excessive inflation, Dr. Oliver said.

“I don’t think we’ve seen enough to alter that, as the unemployment rate is still 4.1 per cent, and even though inflation is running below the RBA’s forecast, we know the monthly numbers can be quite volatile, adding to the case to wait for the quarterly.”

During her final press conference in February, Ms. Bullock urged mortgage holders to "be patient" in anticipation of future rate reductions.

After being questioned, Bullock issued the blunt warning after admitting that she has received emails from homeowners who were struggling throughout a protracted period of debilitating interest rate rises.

"I know you're in pain, and I know that mortgage rates have gone up significantly. However, since inflation is the other issue that is seriously harming you, we must lower it," she stated.

"You will be stuck with high interest rates and inflation if we can't bring inflation under control."

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