Reflecting on the global environment at a CEDA event last week, the RBA governor said that issues such as the imposition of additional tariffs on Australia’s biggest trading partner, China, by the new US administration won’t impact domestic inflation in the six-month term.
“It’s actually hard to tell what the new administration will actually do as opposed to what they say they are going to do,” Bullock said, referring to the president-elect’s statements as “shadows”.
“We have to base our policy decisions on what we know, not on shadows.”
“Although we are thinking about the potential implications, we are still mainly focused on what we’re observing going on in Australia at the moment,” the governor noted.
“Because if there are implications on inflation, they’re not happening next month, or even in six months, it’s going to be out a little bit. Our focus needs to remain staying the course on inflation,” she added.
If the proposed tariffs are implemented, Bullock suggested that the potential outcome could be a rise in inflation in the US, as well as in other countries that retaliate with their own tariffs against Trump’s policies.
“We don’t know how Europe might respond or how China will respond. So I think we just need to be alert to what might be happening in those other countries as well,” the governor said.
But there could also be a silver lining for Australia, she suggested.
Bullock explained: “What often happens with trade is that trade moves, so if there are large tariffs for example on China, Chinese trade will try to find other ways to find an outlet and Australia might be a beneficiary of that, so we might in fact find some deflationary impacts on Australia.”
She added that “what happens to China is going to be really critical”.
Despite the tariff situation, Bullock acknowledged that the Chinese economy remains sluggish. However, she noted that the RBA is closely monitoring the situation and has recently revised its growth forecast for China upward, driven by the impact of recent stimulus measures.
“The efforts of the Bank of China to lower borrowing costs, to encourage lending into particular sectors, that sort of easing, I think, is positive and some of the moves of the government to support consumption and the real estate sector, I think, are positive as well,” Bullock said.
The governor did admit, however, that challenges in the real estate sector remain a key concern.
“It’s a very challenging situation. Property prices in China have not risen. They’ve gone down a lot and they’ve stayed very low, and people in China don’t have a lot of confidence in that whole development industry … That’s impacting the confidence of the Chinese consumer.
“There are still issues there, but the Chinese authorities have shown some inclination to try and address the concerns.”
Looking ahead, Bullock stated that the RBA will need to consider how a slowing Chinese economy is influencing inflationary pressures within Australia.
Also at the CEDA event, Bullock emphasised that Australia’s tight labour market and robust demand still require a restrictive monetary policy approach to keep inflation in check.
The economy’s demand for goods and services has consistently outstripped supply, driving inflationary pressures, she said, pointing to recent consumer price index data as evidence of the ongoing imbalance.
While many countries have loosened their policies, Bullock made it clear that Australia’s unique economic conditions require a different course.
“In Australia, interest rates did not reach the same levels of restrictiveness as many other countries, and consistent with this, inflation has been somewhat higher relative to target here than in most of those economies, and the labour market is also tighter,” Bullock said.
“This means that even with a similar approach to setting policy, the time to adjust domestic monetary policy settings can differ from peer central banks.”
Asked whether that meant no rate cuts until 2026, Bullock declined to speculate, but hinted that, like global counterparts, the RBA may cut rates before inflation hits its target, provided it’s confident the target is within reach.
