The Reserve Bank of Australia (RBA) warned of growing global economic risks stemming from United States trade policies, according to the minutes of its most recent board meeting, held just before President Donald Trump’s 2 April announcement of new “reciprocal tariffs”.
Board members noted: “All central banks had acknowledged the heightened and ongoing uncertainty surrounding both the scope and potential impact of U.S. trade policies.”
Expectations for interest rates in the U.S. and Canada had eased in recent months, with both countries’ central banks warning of downside risks to growth and upside risks to inflation from U.S. tariffs, even as the U.S. Federal Reserve expected the inflationary impact to be “transitory”.
The RBA pointed to signs of weakening U.S. sentiment, stating: “A range of timely indicators of U.S. economic sentiment had declined sharply, including consumer confidence, some business surveys and equity prices.”
The minutes also acknowledged that “market economists’ forecasts for output growth in North America had been downgraded following announcements of higher tariffs”, although expectations for Australia’s major trading partners had, for the time being, remained relatively steady.
“The overall impact on global growth would depend on the policy responses in other economies,” the RBA noted, adding that recent Chinese data “had suggested some pick-up in growth”.
Domestically, market expectations for interest rates had shifted. “Market pricing at the time was for further cuts in the cash rate totalling 50–75 basis points by the end of 2025 – with little-to-no probability of a cut at the present meeting and around a 65 per cent probability of a cut in May,” the minutes stated.
The board also addressed the impact of global policy shifts. In Europe, “expectations of substantial fiscal stimulus – driven by an anticipated increase in defence spending and a relaxation of fiscal rules – had tempered expectations for further policy rate cuts”.
Meanwhile, the Bank of Japan was expected to hike rates after “stronger-than-expected wages data” and sustained inflation pressures.
Regarding the domestic economy, the RBA said that modelling showed the effect of the U.S. tariffs on Australia could be “relatively modest”, assuming no retaliatory action by the Australian Government.
“This reflected Australia’s limited direct trade exposure to the United States, additional policy support in China and Australia’s flexible exchange rate.”
However, members warned of two-sided inflation risks. “Weaker global demand and the possibility of trade diversion away from the United States could reduce inflation in Australia, but a larger exchange rate depreciation or more substantial global supply disruptions could increase inflation.”
The minutes also observed diverging trends in sovereign bond markets. “Longer-term sovereign bond yields in advanced economies had drifted lower in the United States and Canada but had risen slightly in Europe and Japan,” reflecting differing monetary policy expectations.
Turning to household finances, the board noted that “Australian households’ debt servicing payments were still around their highest levels since 2012 as a share of household disposable income.” While required debt payments had stabilised due to stronger household incomes, “households had increased their extra mortgage payments over the same period to pay down debt more quickly”.
The RBA maintained a cautious stance, stating that “it was not yet possible to determine the timing of the next move in interest rates”, and that future policy decisions would depend on incoming data.
“Monetary policy was well placed to respond to international developments were they to have material implications for Australian activity and inflation,” the board concluded.
