RBA on US watch as Donald Trump’s tariffs set back economic growth ahead of next rate decision

The Reserve Bank of Australia is keeping a close eye on developments out of the US as uncertainty in the global economy complicates its decision over whether to cut the cash rate again.

RBA chief economist Sarah Hunter said the bank would remain forward-looking, with its decisions dependent on its forecasts and new data as it unfolds.

But the board must exercise its own judgment beyond the economic modelling provided to it because of risks in the economic outlook, exacerbated by global uncertainty, she told the AFR Banking Summit in Sydney.

Her comments followed a warning from global economic institution the Organisation for Economic Cooperation and Development that Australia faces much slower growth than previously anticipated following US President Donald Trump’s tariff policies.

The OECD downgraded Australia’s growth outlook for 2026 to 1.8 per cent, from 2.5 per cent.

That’s below the Reserve Bank’s prediction from its February Statement on Monetary Policy that the economy would grow at 2.3 per cent in 2026.

Growth this year is still pegged at 1.9 per cent, according to the OECD’s interim outlook released overnight.

The policy forum’s projections for Australia are broadly in line with its subdued outlook for global growth, which is expected to contract by up to three percentage points to 3.1 per cent in 2025 and three per cent in 2026.

The OECD warned a broader trade war, spiralling from the actions of the Trump administration, would sap growth further and could cause inflation to tick up.

However, it still sees Australia’s inflation rate sitting within the two to three per cent band preferred by the central bank over the next two years.

This could give the RBA room to consider more interest rate cuts.

An escalation in the trade war would provide further impetus for the RBA to cut, given tariffs pose more of a downside risk to Australian growth and less of an upside threat to inflation, AMP chief economist Shane Oliver said.

“We continue to see the US tariffs as adding to the case for further RBA rate cuts and our view remains for the next cut in May followed by further rate cuts in August and February,” he said.

Dr Hunter said board decisions are always made in an uncertain environment, so it must apply its own judgment in thinking about risks that challenge its central forecasts.

“One of the things we are focused on right now is US policy settings, the impact of these on the global economy and how this flows through to activity and inflation here in Australia,” she told the summit on Tuesday.

Despite the OECD’s gloomy forecasts, the RBA was more confident that consumer spending was on a path to recovery, despite some suggestions a pick-up in household spending in the December quarter was just a temporary boost from Black Friday sales.

“We had also seen a modest lift in household disposable income from the middle of 2024, and discretionary spending not impacted by sales (e.g. eating out) also showed signs of picking up, which suggested a genuine improvement in underlying momentum,” Dr Hunter said.

“Information from our liaison contacts also supported this assessment.”