Uncertainty posed by Donald Trump’s tariff war aided RBA’s February rate cut

The RBA deputy governor has shared how Donald Trump’s tariff threat affected the central bank’s decision to cut interest rates earlier this month.

Reserve Bank deputy governor Andrew Hauser has said it would be “hard to see” how Australia would escape negative flow-on effects from Donald Trump’s threats of a global trade war, however suggested the uncertainty could translate into future rate cuts.

Speaking about the RBA’s February decision to cut rates by 25 basis points to 4.1 per cent, Mr Hauser said members were aware of the flow-on effects of the tariffs threatened by the US President.

Mr Hauser made the comments at senate estimates on Thursday, appearing in lieu of RBA chief Michele Bullock who was attending the G20 summit in South Africa.

“When you ask how this played into the decision, we didn’t have any firm numbers about the impact of policy, but that uncertainty effect, that cooling or freezing uncertainty effect … was an overlay on these other reasons for cutting rates,” he said.

“While things remain uncertain, cutting rates and easing monetary policy a little in response seemed to some of us, sensible.”

RBA deputy governor Andrew Hauser said uncertainty around the impact of Donald Trump’s threatened tariffs were a factor in the central bank’s decision to cut rates. Picture: NewsWire/ Martin Ollman

Mr Hauser also acknowledged Australia’s vulnerability to potential tariffs, which could increase volatility in global markets.

“Our success has been based on a strong global economy, and when the global economy has been weaker in our history, we’ve suffered too,” he said.

“So if, when all the dusts are settled, the global economy is slower, more impaired. It is hard to see how Australia would escape some negative impact on activity, but the impact on inflation is harder to divine.”

Weakening demand in the Chinese economy also “undoubtedly” risked Australia’s strong employment figure, with unemployment remaining at 4.1 per cent in January, Mr Hauser said.

He added while private activity growth has grown in-line with market expectations, the biggest increases were in non-market sectors like health and education.

However he said the central bank needed more data on whether the Australian market could sustain more employment, and said rising wages as a result of “capacity pressures in the labour market” could cause inflation to rise.

“We’re reviewing the data, and we’d be very happy, frankly, if those who claim that there’s more capacity than we think … are right,” he said.

That will mean that inflation will come down more quickly, employment growth will continue and monetary policy can ease, but I think we are keen to see the evidence for that before we take further steps.”