RBA signals no immediate rate cut amid tariff uncertainty

In a speech on Thursday, RBA governor Michele Bullock addressed evolving tariff threats and said the RBA would monitor developments closely in preparation for its next monetary policy decision on 19-20 May.

“Inevitably, there will be a period of uncertainty and adjustment as countries respond to the ongoing tariff announcements by the United States administration,” Bullock said.

“It will take some time to see how all of this plays out, and the added unpredictability means we need to be patient as we work through how all of this could affect demand and supply globally.”

Some commentators have called on the RBA to act quickly and lower interest rates before their May monetary policy meeting, in response to the evolving economic chaos.

“Waiting until nearly the end of May is far too long. The RBA should be nimble enough to realise that the tariffs levied by the USA are an unprecedented move that is already sending shockwaves through the world’s economy,” Greg Jericho, chief economist at The Australia Institute, said in a press release.

However, the RBA signalled its intention to remain patient and monitor the economic environment before making policy decisions.

“We are carefully considering several factors, including the response of our trading partners, additional counter-responses from the US, the response of our exchange rate, and adjustments in other financial markets,” Bullock said.

“A key focus for us is how all this uncertainty is affecting decisions made by households and businesses in Australia.”

While financial and economic volatility could be expected as the tariff “process” unfolds, Bullock reiterated that Australia has weathered greater shocks, including the 2008 financial crisis.

“The Australian financial system is strong and well placed to absorb shocks from abroad,” she added.

“We are mindful of not adding to the uncertainty, and to that end, it’s too early for us to determine what the path will be for interest rates. Our focus remains on our dual mandate for price stability and full employment.”

Tariff chaos has prompted economists to predict faster and deeper rate relief throughout 2025, upon expectations that a global economic slowdown and a flood of excess supply in global markets could spark deflation in Australia.

Given the instability and uncertainty taking hold of the global economy, the RBA has opted to take a ‘wait and see’ approach before its May meeting, where economists largely expect it to deliver an additional interest rate cut.