Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser raised concerns on Tuesday regarding the significant levels of global trade uncertainty, which he noted are at their highest in 50 years. Hauser highlighted that the ambiguity stemming from US President Donald Trump’s tariffs could lead to companies and households postponing their plans and investments, potentially stalling economic growth.
Key Quotes: Hauser pointed out that the risk for Australia lies in the potential of US tariffs triggering a global trade war. He warned that the uncertainty could result in businesses and households adopting a “watchful waiting” approach, which could be economically damaging in the aggregate. This possibility was one of the contributing factors behind the RBA’s decision to cut rates in February.
The rate cut aimed to reduce the risks of inflation falling below the RBA’s 2.5% target. However, Hauser emphasized that the board does not currently share market expectations for a series of further rate cuts. While progress on inflation has been promising, he stressed that it is too early to declare victory.
Hauser also noted that labour market conditions are expected to remain tight, but the RBA acknowledges the risk of potentially overestimating the tightness. He pointed to productivity as a key factor influencing both the Consumer Price Index (CPI) and overall economic performance. Additionally, the RBA will closely monitor the impact of the ongoing trade tensions on inflation. Should inflation accelerate as a result of the trade war, the central bank is prepared to take action.
While inflation is slowing, Hauser identified some remaining upside risks, particularly from the effects of a trade war. The RBA is closely monitoring unusual volatility in various markets, including stocks, cryptocurrencies, and futures. He also highlighted that the board’s decision to cut rates was not evenly split but also not heavily one-sided, reflecting a balanced approach.
The RBA remains cautious about the potential overheating of the labour market and will continue to watch global trade developments closely.
Market Reaction: At the time of Hauser’s comments, the Australian Dollar (AUD) was holding its ground, trading at around 0.6265, up 0.27% on the day.
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