Reserve Bank of Australia (RBA) governor Michele Bullock has indicated that while there are obvious issues emerging from the US election, it is still too early to predict the potential fallout for Australia.
Speaking at the Senate budget estimates on Thursday, Bullock shared that the RBA is monitoring developments closely, but any judgements on implications may be premature.
“There are obviously people talking about the potential implications of tariffs, and those sorts of things,” Bullock said.
“The potential implications for inflation, not just Australia but the world, I think is pretty hard to judge at this stage,” the governor said.
“We can’t be setting policy on the basis of things that could happen or might not happen. I think it’s difficult. I think we have to wait and see what actually does happen in terms of some of these events and respond when necessary.”
Expounding on the economic challenges the US may face under a Trump presidency, Christopher Kent, assistant governor, noted that market movements align with expectations of increased US deficits driven by tax cuts, which, in turn, are likely to result in higher long-term interest rates and higher inflation.
“Because the US is such an important source of funding and the demand by the US government for borrowing is substantial, that will have upward effects on global interest rates,” Kent said.
“It’s also pushing the USD up and other currencies down, but I would note that other currencies have fallen by more than the Australian dollar in recent days.”
Kent highlighted that tariffs are another concern on the RBA’s radar but emphasised that there is currently insufficient information to assess their impact.
“The big concern is large tariffs on China, which may have an adverse effect on us, but as I said, our equity markets have moved up a bit in response initially, and the Aussie dollar not much change,” he said.
At a Senate budget estimates hearing on Wednesday, Treasury secretary Steven Kennedy confirmed that Treasury has completed its scenario analysis of the US election, following the Treasurer’s announcement last month that officials were assessing the potential impact of each candidate’s policies.
Kennedy said the modelling highlighted major ripple effects for Australia, particularly if US trade tariffs were to rise sharply.
“In broad terms, the imposition of trade restrictions such as tariffs typically lead to lower growth and higher inflation,” Kennedy said.
“The implications for Australia are more about growth because of the implication for China, of course, and their demand for our goods.”
Economists mixed on expectations
Deutsche Bank’s chief economist for Australia, Phil O’Donaghoe, doesn’t expect any immediate implications for the RBA as a result of Trump’s victory.
“The RBA’s focus remains a domestically generated inflation problem stemming from the fact that the bank eased policy more aggressively than peers during COVID, and has subsequently tightened by substantially less,” O’Donaghoe said.
“We continue to expect no rate cuts from the RBA until May next year,” he added.
In his market note, AMP’s Shane Oliver flagged the possibility of an impact on the RBA if Trump’s policies boost inflation globally.
He highlighted that there is the risk that if Trump’s policies boost US inflation, there could be a global flow-on, including to Australia, resulting in higher than otherwise RBA interest rates.
“This is a risk, but I suspect it would be offset by the growth dampening impact of an intensified global trade war,” Oliver said.
