RBA Governor Michele Bullock Warns of Rate Cuts if Trump Tariffs Harm Global Economy

Donald Trump's potential trade war could devastate global GDP and harm Australia, but RBA Governor Michele Bullock says she is prepared to defend economic growth with rate cuts.

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

RBA Governor Michele Bullock announced the prospective defensive measures during a news conference in Sydney on Tuesday afternoon, following the board's decision to keep the official cash rate at 4.1%.

"When we went into the pandemic, interest rates were about 1.5 percent," she informed me.

"They are now considerably higher than that.

"If it turns out that there is a significant growth impact on Australia, we have the flexibility to adjust the exchange rate to support.

"Now, it does depend on what happens."

Rate decreases often stimulate economic growth because borrowing becomes more affordable, promoting investment and expenditure.

Ms Bullock announced the changes as central bankers around the world assessed the impact of US tariffs on global GDP and inflation.

President Trump stated that his reciprocal tariff proposal on April 2 would cover all nations, despite rumors that only 10 to 15 countries would be affected.

So far, he has slapped tariffs on aluminum, steel, and the automobile industry, as well as raised duties on all items imported from China.

Tariffs on Canada and Mexico are set to begin early next week.

Ms Bullock stated that Australia was well-positioned to deal with the uncertainties caused by President Trump's trade stance, with decreasing inflation and low unemployment rates.

However, she warned that a stagflation' situation, in which GDP slows while inflation rises, would be "challenging."

"If growth slows but inflation picks up … then we're in a slightly difficult world."

Ms Bullock stated that the board had not yet documented any impact on inflation in Australia as a result of the impending tariffs but that the board would "watch and wait and see what happens."

NewsWire asked Ms Bullock if market estimates of three rate cuts between now and mid-2026 were still valid in light of Trump's protectionist policies and their inflationary effects.

Ms. Bullock stated that the answer was dependent "on a number of things".

"Do they reply by imposing equivalent tariffs?  As a result, this will undoubtedly have an impact on global supply networks as well as manufacturing efficiency in many economies.

"It also depends heavily on China's actions..."  It will be badly impacted not only in terms of trade but also as our most important trading partner.

"And at least at the moment, the Chinese authorities have indicated that they are going to make sure that they keep momentum in their economy."

She stated that China still had a 5% growth target.

"So at least our scenario analysis at the moment suggests that if China continue on that path, then yes, there will be a bit of an impact on us in terms of growth," said Mrs. Bullock.

"But it's not going to be as big as some other countries might suffer in these sorts of circumstances."

Ms Bullock stated that the Board was "gradually gaining confidence" in its efforts to sustainably return inflation to the 2-3 percent target range.

"We don't have complete confidence, but if you look at our estimates and how inflation is tracking relative to forecasts, we're

"I'm actually doing pretty well," she explained.

She also stated that the Board does not expect Australia to enter a recession within the following year.

The RBA indicated in its monetary policy statement on Tuesday that President Trump's threat to increase tariffs on Australia and its trading partners had a significant impact on their decision.

"On the macroeconomic policy front, recent announcements from the United States on tariffs are having an impact on confidence globally and this would likely be amplified if the scope of tariffs widens, or other countries take retaliatory measures," the chairman of the board stated.

Geopolitical uncertainties are also significant."

"These developments are expected to have an adverse effect on global activity, particularly if households and firms delay expenditures pending greater clarity on the outlook." 

The board also expressed concern about the unpredictability of Australia's inflation rate.

"Inflation, however, could move in either direction," the RBA board stated.

"Many central banks have eased monetary policy since the start of the year, but they have become increasingly attentive to the evolving risks from recent global policy developments."

Independent economist Saul Eslake stated that the RBA would consider quarterly job and inflation data due at the end of April before making its next move. 

"The new monetary policy committee will be waiting for more data on the extent to which inflation and in particular its preferred measure of 'underlying' inflation has continued to fall," the economist stated.

According to AMP senior economist Shane Oliver, while the RBA is unlikely to cut interest rates during an election, the facts do not support back-to-back rate cuts.

"I believe the RBA is cautious.  When they cut in February, they made it clear that they were hesitant to cut again because they are still concerned about high inflation and a tight labor market," Dr Oliver stated.

"I don't think we've seen enough to change that, as the unemployment rate remains at 4.1%, and even though inflation is running below the RBA's forecast, we know the monthly numbers can be quite volatile, adding to the case for waiting for the quarterly."

The interest rate hold comes after the RBA reduced the official cash rate from 4.35 to 4.10 percent in February.

Ms Bullock used her final press conference in February to urge mortgage holders to "be patient" when it comes to future rate reduction.

Bullock delivered the strong warning in response to a NewsWire query, saying that she has received emails from struggling homeowners who had been subjected to a protracted period of crushing interest rate increases.

"I understand you are hurting, and I understand mortgage rates have increased significantly..."  But we need to reduce inflation because it is the other thing that is really harming you," she remarked.

"If we don't get inflation down, interest rates won't come down, and you'll be stuck with inflation and high interest rates."