RBA Says US Election's Impact On Australian Inflation Remains Unclear, Awaits Trump Policy Outcomes
The Reserve Bank of Australia said on Thursday that it was difficult to predict how the U.S. election will affect inflation in the country at this stage, while keeping an eye on the potential economic impact of a Donald Trump presidency.
"We cannot be setting policy on the basis of things that could happen or might not happen," RBA governor Michele Bullock told a Senate estimates hearing on Thursday. "I think we have to wait and see what actually does happen in terms of these events and respond as necessary."
The main concern for Australia was the potential for high tariffs on China, Assistant Governor Chris Kent noted, according to AAP. However, the broader impacts of Trump's policies remained unclear, he stated.
"One of the big effects, potentially, is on China but you can't imagine that the Chinese will do nothing," he said. "One of the things they'll do, and one of the things they've even announced of late, is more fiscal stimulus. And we don't know the size of that, and we don't know where it's directed to."
Bullock said the RBA had reviewed some of Trump's policies, including a 60% tariff on China, but it remained uncertain whether he will implement them, Reuters reported.
"It might be inflationary in some ways, but it might be deflationary in the other ways, if China ends up badly affected by this and that badly affects us," she said. "So it's not easy to dissect what's going to happen with all of this."
The positive response from local stock markets and the Australian dollar to the U.S. election result did not suggest a negative outlook toward the country's economy, Kent said.
The central bank has not yet revised its inflation outlook, which is expected to fall within the target range only in 2026, Bullock pointed out.
The bank has kept its policy unchanged for a year, expecting the current cash rate of 4.35% to reduce inflation to its 2-3% target while supporting job growth.
Headline inflation slowed to 2.8% in the third quarter, back within the target range for the first time since 2021, mainly due to government rebates on electricity bills.
However, underlying inflation remained at 3.5%, above the target midpoint, prompting the central bank to maintain a cautious stance though it did not rule out policy changes. Market swaps suggest the first rate cut may come in May next year, later than in other major economies.
According to Kent, Trump's presidency might lead to U.S. deficits due to tax cuts, leading to higher inflation and interest rates, and boosting growth for a while.
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