{"id":6418,"date":"2025-04-09T22:50:20","date_gmt":"2025-04-09T22:50:20","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/6418\/"},"modified":"2025-04-09T22:50:20","modified_gmt":"2025-04-09T22:50:20","slug":"what-do-tariffs-and-the-market-turmoil-mean-for-interest-rates","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/6418\/","title":{"rendered":"What do tariffs and the market turmoil mean for interest rates?"},"content":{"rendered":"

When President Donald Trump last week announced sweeping tariffs on US imports it sent shock waves through global markets.<\/p>\n

Wall Street experienced its worst day since COVID hit in 2020<\/a> and the Australian share market followed suit.<\/p>\n

“I think the market reaction has been one of shock,” David Bassanese, Chief Economist with BetaShares, told the ABC.<\/p>\n

“The increases in tariffs across the board were much larger than expected and in and of themselves could be big enough to push the US economy into recession.”<\/p>\n

The fear and turmoil that’s spread through global markets has worried investors \u2014 but what does it mean for the chances of an interest rate cut here in Australia?<\/p>\n

Quite a lot, it would seem. Financial markets have increased their bets, now pricing a more than 100 per cent chance of a rate cut in May \u2014 and at least four in total through the year, bringing the RBA’s cash rate, on current market predictions, down below 3 per cent by the end of the year from 4.1 per cent currently.<\/p>\n

Markets live coverage: follow the latest ASX moves and global market updates, plus insights and analysis, on our live blog.<\/a><\/p>\n

And all four major banks have solidified or brought forward their predictions on when the next rate cut is likely to be: they now expect three interest rate cuts this year, starting next month.<\/p>\n

While ANZ bank had previously only forecast one rate cut this year, it now has three on the cards in May, July and August \u2014 and wasn\u2019t ruling out a double cut \u2014 of half a percentage point (instead of the regular quarter of a percentage point cut) next month if conditions warranted.<\/p>\n

In a recent note ANZ\u2019s head of Australian economics, Adam Boyton said: “On the information we have to hand, the market reaction and past RBA responses to global shocks, more aggressive RBA easing now seems more likely than not. Indeed, we would not rule out a 50bp cut in May, if sentiment sours and the global growth outlook deteriorates sufficiently.”<\/p>\n

What would prompt more rate cuts?<\/p>\n

The reason for a potentially more aggressive cutting cycle is concern about an economic slowdown or even recession in the United States \u2014 and the impact that could have here, economist David Bassanese said.<\/p>\n

“So although we’re not directly affected, it’s the indirect effects on the global economy that will hurt us.”<\/p>\n

Compared to some of the heftier tariffs of up to 50 per cent faced by some countries, Australia could be seen to have gotten off relatively lightly with just 10 per cent.<\/p>\n

\"Michele<\/p>\n

While the direct impact of tariffs may not be huge, the indirect impacts are what the RBA and its governor Michele Bullock will be watching closely. (ABC News)<\/p>\n

As NAB\u2019s Chief Economist Sally Auld noted this week, Australia\u2019s exports to the US only comprise around 4 per cent of our overall export basket, “and so the direct macro-economic impact will be small”.<\/p>\n

But what will likely hit us harder \u2014 and what the RBA will be watching closely \u2014 are the indirect impacts on some of our bigger trading partners (such as China), and the effects on their economies, as well as the general global economic slowdown and negative sentiment that the tariffs may bring.<\/p>\n

“For businesses, elevated uncertainty will be the key issue (particularly for those in export intensive industries) and for households, the key risk is that businesses’ slow hiring and investment in response to greater uncertainty,” Ms Auld notes.<\/p>\n

Economist David Bassanese agrees \u2014 and said that would strengthen the case for a cut.<\/p>\n

“I think a rate cut in May now is all but certain. You know, we do need to see what the CPI does at the end of this month. But I mean, unless it’s an incredibly nasty CPI, which I don’t think is likely, I think the RBA is going to cut rates.”<\/p>\n

Why Trump’s tariff war is so dangerous<\/a><\/p>\n

It may be the world’s largest economy, the global military superpower. But America is beset with problems.<\/p>\n

“It’s a net downward pressure on activity, not an upward pressure on inflation. So it’s unambiguous in terms of the response from the RBA. They don’t have to worry about inflation going up.”<\/p>\n

Mr Bassanese would like to see an unconventional 0.35 percentage point rate cut to bring the cash rate back to a neater number of 3.75 per cent \u2014 “but it would also herald that this is a significant risk to the economy and a larger than normal move I think is warranted”.<\/p>\n

As for calls for a half percentage point rate cut or the prospect of the RBA bringing their next meeting \u2014 scheduled for May 20 \u2014 forward?<\/p>\n

“At this stage, I think that would smack of panic to do that larger move. But you know, if the Fed [US Federal Reserve] intervenes in the next few weeks and starts to cut rates, I think you know, we may well respond, so I would say it’s possible, but at this stage, not likely.<\/p>\n

“I don’t think the RBA needs to panic, you know, just yet and sort of bringing meetings forward or cutting rates by 50 basis points,” Mr Bassanese said.<\/p>\n

But if the RBA did hold an earlier meeting to discuss an earlier rate cut how would it work?<\/p>\n

“I don’t think the RBA would announce a meeting is going to take place, say, tomorrow, and then, you know, we’d all wait to see what the outcome would be, because I think we’d know what the outcome would be. Rather, they probably have an impromptu phone hook-up or what have you amongst RBA members, make a decision and then announce that decision.”<\/p>\n

And while many mortgage borrowers and prospective home buyers will be hoping for a rate cut, David Bassanese had this to add:<\/p>\n

\u201cYou know, we kind of hope it won’t happen. I mean, lower interest rates are nice, but you don’t want it to be a recession that generates those lower interest rates. Because it’s good for some people, but for those that lose their jobs, it’s not so good.”<\/p>\n

\"A<\/p>\n

\u201cI think a rate cut in May now is all but certain,” said David Bassanese, chief economist for Betashares. (ABC News: Mark Moore)<\/p>\n

How much could rate cuts save me on my mortgage?<\/p>\n

According to Canstar, a rate cut in May would reduce a $500,000 mortgage by $76 a month \u2014 and if a double cut by half a percentage point were to pass that would mean a $151 monthly saving.<\/p>\n

Three rate cuts by the end of the year would mean a saving of $224 on monthly repayments for a $500,000 mortgage and $336 saved for those on a $750,000 mortgage.<\/p>\n

Loading…What else can the RBA do amid market chaos?<\/p>\n

Aside from raising or cutting rates, the RBA has several other tools in its kit including the relatively rare step of intervening in the currency market.<\/p>\n

Though Challenger’s chief economist, Jonathan Kearns \u2014 who was until 2023 the head of domestic markets at the Reserve Bank of Australia and before that the head of the financial stability department \u2014 says the RBA is highly unlikely to do that at this stage.<\/p>\n

Dr Kearns told the ABC the RBA would need to see disorder in markets before stepping in.<\/p>\n

The RBA did step in to prop up the Australian dollar around the 60-cent level in late 2008, but that was on a day when the currency had fallen around 8 US cents against the greenback in a matter of hours.<\/p>\n","protected":false},"excerpt":{"rendered":"When President Donald Trump last week announced sweeping tariffs on US imports it sent shock waves through global…\n","protected":false},"author":2,"featured_media":6419,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3091],"tags":[3718,51,1700,3712,3714,478,2441,3717,3713,3711,3716,3715,479,16,15],"class_list":{"0":"post-6418","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets","8":"tag-asx200","9":"tag-business","10":"tag-economy","11":"tag-home-loan","12":"tag-house","13":"tag-interest-rates","14":"tag-markets","15":"tag-michele-bullock","16":"tag-mortgage","17":"tag-rates","18":"tag-rba","19":"tag-real-estate","20":"tag-tariffs","21":"tag-uk","22":"tag-united-kingdom"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/114310455167195578","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/6418","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=6418"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/6418\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/6419"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=6418"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=6418"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=6418"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}