Australia central bank says higher US tariffs a drag on global economy
SYDNEY, June 3 (Reuters) - Australia's central bank said on Tuesday that higher U.S. tariffs would drag on the global economy and put near-term downward pressures on prices of traded goods, though the exact impact is hard to assess given the policy uncertainties.
In a speech in Brisbane, Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter said the central bank will closely monitor how trade policies evolve globally, with the higher uncertainty expected to lead to declines in investment, output and employment.
"But the unpredictability and unprecedented nature of the current situation makes it hard to be precise on the size of the impact," said Hunter. "Going forward we will be monitoring carefully which assumption is closest to how things unfold."
The expected hit to Australia's economy and the labour market was one reason that the RBA cut interest rates to a two-year low of 3.85% last month and opened the door to more policy easing in the months ahead.
It also considered a severe downside scenario for global trade and a trade peace scenario where tariffs would be rolled back.
"Benchmarking against the scenarios in the May SMP (Statement on Monetary Policy) will help us identify the scenario that best reflects current conditions and the outlook, enabling the Board to adjust policy settings accordingly," said Hunter.
The RBA also judged the tariffs would be disinflationary for Australia as Chinese producers, in the face of higher U.S. tariffs, try to redirect their products to other markets.
"For countries that are not imposing higher tariffs, such as Australia, this could flow into import prices, making products cheaper and lowering inflation," said Hunter.
Headline consumer price inflation held at 2.4% in the first quarter and a key trimmed mean measure of core inflation slowed to 2.9%, taking it back into the RBA's target band of 2% to 3% for the first time since late 2021.
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