Uncertainty surrounds the Reserve Bank of Australia’s interest rate-setting board as it meets for the first time since Donald Trump blew up the global free trade establishment.
But the two-day meeting, which begins on Monday, comes at a fortuitous time, with the board able to rely upon some known knowns.
Two influential pieces of data released by the Australian Bureau of Statistics last week painted a clearer picture of a labour market still going strong.
Meanwhile, the wait since “Liberation Day” on April 2 has allowed the board to sit back and see how the US president’s tariff plans have played out.
Mr Trump’s backdown on Chinese tariffs – dropping them to 30 per cent from 145 per cent – offers “at least some reassurance that the US is willing to make trade deals with its counterparts”, said AMP economist Diana Mousina.
But then there are the known unknowns.
Despite the easing in trade tensions, the global economy is still in for a significant hit.
But the data is yet to show exactly how substantial this will be.
Australian exports to the US will still face tariffs of at least 10 per cent, but the bigger impact on the domestic economy will be the flow-on effects from China.
JP Morgan economists predict the extent of the drag on Chinese economic growth to be 1.5 percentage points in 2025.
Chinese economic output spiked at the start of the year as US importers stockpiled inventory but activity data released on Monday could show a slowdown as front-loading unwinds, said JP Morgan’s Bruce Kasman, Joseph Lupton, Nora Szentivanyi and Malcolm Barr.
The known unknown of the negative impact on Australia’s economy weighs in favour of the Reserve Bank easing back the restrictiveness of interest rates, as do the unknown unknowns.
Even as Mr Trump’s apparent willingness to make deals has reassured markets, the uncertainty that surrounds his erratic decision-making will still drag on the economy.
There is always the risk that he could do something unexpected that drives markets back into turmoil.
Speaking shortly after the last board meeting in April, RBA governor Michele Bullock said a key focus of the bank was how much uncertainty was causing households and businesses to put off spending decisions.
The rates market has nearly fully priced in a 25 basis point cut, but until 2.30pm on Tuesday, the board’s decision will remain an unknown known to all but themselves.
Australian Associated Press is the beating heart of Australian news. AAP is Australia’s only independent national newswire and has been delivering accurate, reliable and fast news content to the media industry, government and corporate sector for 85 years. We keep Australia informed.
