Donald Trump’s shock threat to lift tariffs on Chinese imports from 10% to 25% this Friday sent markets south across Asia yesterday, but it could very well have convinced the Reserve Bank that a cut in the cash rate at today’s meeting might be a bit of insurance for the economy to have in case the erratic US President follows through on his tweeted comments.
The Trump threat could see China withdraw from talks with the US due to resume this week – China has always said they will not negotiate while being coerced.
Quite a few local analysts and economists reckon the RBA will cut rates today.
For example the ANZ said last week it is expecting the RBA to cut the cash rate by 25 basis points , to 1.25%.
“We think the RBA will see the need for additional stimulus in order to lift inflation to 2 per by the later part of the forecast horizon and consequently expect the cash rate to be cut by 25 basis points on Tuesday,” said ANZ head of Australian economics David Plank.
ANZ joins the list of forecasters expecting a cut on Tuesday, along with Capital Economics, Nomura, Macquarie, TD Securities, Market Economics, RBC Capital Markets, JP Morgan, QIC, Citi, Morgans, ING and AMP Capital where chief economist Dr Shane Oliver also thinks there is a chance the central bank could put off a rate cut till June while moving to a clear easing stance.
But his and other forecasts were made before Trump’s tweeted tariff boost threats and given the closeness to China any boost to tariffs to 25% on hundreds of billions of dollars of imports from China would have a damaging impact on Australian exports and the market, as well as the property and financial sector.
Markets across Asia took a pounding yesterday in the wake of the Trump Tweets – China was down more than 6%, our market lost more than 50 points or 0.8%.
The RBA has been watching trump’s trade war threats and actions now for over a year and in the minutes of the April meeting said:
“Recent trade talks between the United States and China had taken on a somewhat more positive tone. However, the United States had also said it would consider imposing restrictions on automotive imports, which would affect large car exporters, including Germany and Japan.”
Trump’s threats will have alarmed the RBA, so don’t be surprised if there is a rate cut, but not quite for the reasons of low inflation here.
