‘Uncertainty is the enemy’: RBA could hold rates on back of Trump’s tariffs

Uncertainty over US President Donald Trump’s current tariff policies could push back the RBA’s plans to cut rates in February, economists warn.

Mortgage holders’ long-awaited rate cut could be put on hold as Australia’s central bank deals with the uncertainty of Donald Trump’s latest tariff plans.

BDO partner, economics Anders Magnusson said markets like certainty, with Trump’s surprise tariffs creating another risk for the RBA to consider.

“While Australia hangs in limbo on securing an exemption in Australian imports from President Trump, the ripple effect of tariffs elsewhere will hit the Australian economy, nevertheless,” Mr Magnusson said.

“The uncertainties of a global tariff war may delay the RBA to hold its first rate cut for longer.”

US President Donald Trump speaks to journalists about TikTok as he signs executive orders in the Oval Office of the White House in Washington, DC, on January 20, 2025. Picture: NewsWire / Jim WATSON / POOL / AFP

The cash rate target has been set at 4.35 per cent since November 2023, with experts largely predicting the RBA will cut rates to 4.10 per cent when they meet on February 17 and 18. But

over the weekend, US President Donald Trump put in sweeping 25 per cent tariffs on steel and aluminium, which the Australian government has lobbied to be exempt from.

Webull Securities chief executive Rob Talevski said Trump’s tariffs create an extra variable for the RBA to consider.

“While the data points in Australia are heading in the right direction, uncertainty is the enemy of any central bank, especially for one that hasn’t cut rates in over four years,” Mr Talevski said.

“Unknown outcomes from recent US policy shifts and persistent weakness in China will certainly be on the Bank’s radar, and it wouldn’t be outside of the realm of possibility that the RBA will wait until March for the dust to settle.”

Mr Magnusson said while the steel and aluminium imports themselves won’t have a significant impact on the Australian economy, the knock on impacts could have a real impact.

“There will be a real impact but it won’t be catastrophic and it is now about us exporting steel and aluminium to the US.”

“Demand for that could decrease as the price goes up, but that is a small piece of Australia’s economic plan,” Mr Magnusson said.

“The real disruption comes to prices getting pushed up in the global supply chain. For example we import a lot of equipment and machinery from the US and they use steel and aluminium in the manufacturing, so the price increase will be passed on,” he said.

The US leader recently added a 25 per cent tariff onto all steel and aluminium products. Picture: NewsWire / Jim WATSON / POOL / AFP

Despite the uncertainty, money markets are still factoring in a 90 per cent chance of a rate cut in February, down from 93 per cent earlier in the week.

Independent economist Saul Eslake said the Trump tariffs are unlikely to stop the RBA from cutting rates in February, calling for three cuts by August, although acknowledged the mixed signals it is having on the Australian dollar.

“The standard response is the country that imposes tariffs currency goes up, while the foreign countries’ currencies go down.

“Until three weeks ago this was standard practice, but what is interesting is in the last three weeks, since imposing tariffs, the US dollar has fallen,” he said.

Mr Eslake said it is unlikely the RBA would need to step in to protect the Australian dollar, unless it falls to the point where it is boosting inflation.

“The RBA doesn’t really care about the value of the dollar unless it is becoming distorted or if it has fallen so far it is a factor in inflation,” he said.