Jackson Hewett: Is the RBA going to cut rates? Trump’s tariffs raise economic risksKimberley BraddishThe NightlyTue, 8 July 2025 8:55AMCommentsComments
The Reserve Bank is highly tipped to cut interest rates at 2.30pm on Tuesday and not just because local spending is soft or inflation’s easing.
As the RBA Board enters the second day of deliberation, they’ll be sweating on US President Donald Trump’s fresh round of tariffs including 25 per cent on key Australian trading partners Japan and Korea.
A messy, drawn-out trade war was a key concern at the last RBA meeting in May, something Assistant Governor Sarah Hunter said could “structurally alter the world economy”.
At its last meeting, the RBA ran through a bunch of scenarios: one where things stay mild, one where the worst is avoided, and one where a full-blown trade war sends everything south.
That worst-case scenario includes higher prices for imports, broken supply chains, nervous businesses pulling back on investment, and a hit to confidence across the board.
With components of complex goods like cars sourced across multiple countries, the danger is tariff-induced bottlenecks, pushing up prices at the same time as global demand is going soft. That’s the kind of squeeze central banks hate: weak growth and rising costs.
And then there’s the uncertainty. It’s not just what tariffs are in place, it’s the fact that no one knows what’s coming next. “There is ample research showing that higher uncertainty can lead to declines in investment, output and employment,” Ms Hunter said in June.
When things are this unpredictable, businesses sit on their hands. Some of the market reaction to Trump’s tariff spree has eased since April’s collapse, but the RBA knows it won’t take much for investors to get spooked again, and that could feed straight into tighter financial conditions here.
The RBA has enough evidence to suggest Australia needs an interest rate shot in the arm. The Commander Chaos in Chief has thrown a new layer of concern into the mix.
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