The central bank has flagged that borrowers could be in line for even more interest rate cuts if Donald Trump’s tariffs hit the economy harder than expected
The minutes from the bank’s May meeting were released on Tuesday, shedding light on its decision to cut the cash rate by 25 basis points to 3.85 per cent.
The Reserve Bank considered an even larger reduction of 50 basis points at the meeting, due to uncertainty in global markets.
Bank board members said the repercussions from tariffs imposed by the US had reinforced the need to cut interest rates.
“Developments in the global economy since the previous meeting strengthened the case for a reduction in the cash rate target,” the minutes said.
“The rise in global tariffs and increase in policy uncertainty had adversely changed the outlook for growth in Australia’s major trading partners.”
However, a 0.25 per cent cut was agreed upon as being the most appropriate.
“Developments in the domestic economy on their own justified a reduction in the cash rate target and that the case for that action was strengthened by developments in global trade policy,” the minutes said.
The Reserve Bank said if the global uncertainty had more negative consequences than expected, interest rates would need to be cut even more than forecast.
“Monetary policy would need to move to an expansionary setting in the event these scenarios materialised,” the minutes said.
The rates market has forecast the cash rate would go down to 3.1 per cent by the end of the year.
However, the central bank said it was not yet time to make a decision on whether a more aggressive approach to cutting interest rates was needed.
“These considerations and the prevailing global policy uncertainty led members to express a preference to move cautiously and predictably when withdrawing some of the current policy restriction,” the minutes said.
The OECD will reveal how Australia’s economy stacks up against other allies when it releases its global economic outlook on Tuesday.
The outlook comes a day before the release of data on the domestic economy’s performance in the first three months of 2025.
Economists tip Wednesday’s gross domestic product numbers for the March quarter will show the economy expanded by up to 0.5 per cent.
Treasurer Jim Chalmers says the economy was still buoyant in the face of pressures, such as global trade uncertainty triggered by US President Donald Trump’s tariffs.
“(The) national accounts data is expected to show our economy is resilient in the face of substantial headwinds at home and abroad,” he said.
“Our economy has been hit by natural disasters and we’re not immune to global volatility, but the progress Australians have made together means we are well placed to face this uncertainty.”
Treasury figures have shown a $2.2 billion hit to economic activity following natural disasters such as Tropical Cyclone Alfred and flooding in Queensland and NSW.
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