Australia’s most powerful banker has delivered a blunt message to home borrowers amid hopes Donald Trump‘s trade wars will trigger massive interest rate cuts.
Reserve Bank of Australia Governor Michele Bullock has doused speculation of rate cuts in the coming months, with financial markets worried about a global recession.
She talked down the prospect of big rate cuts as the futures market and the big banks predicted the most dramatic relief to borrowers since the Global Financial Crisis of 2008 and 2009.
‘It will take some time to see how all of this plays out and the added unpredictability means we need to be patient as we work through how all of this could affect demand and supply globally,’ Ms Bullock told the Chief Executive Women annual dinner in Melbourne on Thursday night.
Australia’s share market has this week suffered the biggest daily slumps since the start of Covid in March 2020, after investors were spooked by the Trump Administration’s sweeping tariffs.
National Australia Bank on Friday slashed its fixed mortgage rates in a sign it is expecting the RBA to significantly ease monetary policy from next month.
NAB had adjusted its forecasts to have the RBA slashing rates by 50 basis points in May, and embarking on more cuts in July, August, November and February.
This would see the Reserve Bank cash rate fall from 4.1 per cent now to 2.6 per cent by February 2026.
Reserve Bank of Australia Governor Michele Bullock (pictured) talked down the prospect of big rate cuts during a speech at the Chief Executive Women annual dinner on Thursday night
Australia’s share market has this week suffered the biggest daily slumps since the start of Covid in March 2020, after investors were spooked by Donald Trump’s tariffs
With the February 2025 rate cut factored in, rate cuts adding up to 175 basis points over a year would mark the most generous relief since the GFC in late 2008 and early 2009.
The futures market sees the RBA cash rate falling to 2.85 per cent by the end of 2025 – a level last seen in December 2022.
But Ms Bullock said the latest volatility wasn’t comparable to the GFC.
‘Financial market and economic volatility can be expected as this process unfolds,’ she said.
‘But there are two points I want to make on this. First, we’re not currently seeing the same degree of impact as previous market events like in 2008 for example.
‘And second, the Australian financial system is strong and well placed to absorb shocks from abroad.’
NAB on Friday slashed its three-year fixed rates by 45 basis points to just 5.39 per cent, which is well below its equivalent 6.19 per cent variable mortgage rate and the cheapest among the Big Four banks.
Only Australian Mutual and the Northern Inland Credit Union offer a lower three-year fixed rate of 5.29 per cent.
She talked down the prospect of big rate cuts as the futures market and the big banks predicted the most dramatic relief to borrowers since the Global Financial Crisis (pictured is a Sydney auction)
Canstar data insights director Sally Tindall said NAB’s latest move reflected its expectation of a 50 basis point rate cut in May.
‘NAB is putting its money where its mouth is, slashing fixed rates by up to 0.55 percentage points following its prediction of a double cash rate cut in May,’ she said.
The Australian share market was a rollercoaster again on Friday with the benchmark S&P/ASX200 falling 1.9 per cent during the first hour of trade.
Monday’s 4.23 per cent drop wiped off more than $100billion from shares and marked the worst day in five years.
The Australian dollar this week also fell to a five-year low of 59 US cents, sinking to a level last seen during the early days of Covid in March 2020 but it has since recovered to 62 US cents.
The Trump Administration is hitting China, Australia’s biggest trading partner, with new 125 per cent tariffs after it responded in kind by hiking duties on American imports to 84 per cent.
While the US government is pausing other tariffs for 90 days, an assault on China could seriously weaken its demand for Australia’s biggest export, iron ore.
Less Chinese demand for the commodity used to make steel risks wounding business confidence in Australia, in turn leading to higher unemployment as firms stop hiring and investing.
This would be damaging even if Trump undoes the 10 per cent tariffs on Australia.
‘We are carefully considering several factors including the response of our trading partners, additional counter-responses from the US, the response of our exchange rate, and adjustments in other financial markets,’ Ms Bullock said.
‘A key focus for us is how all this uncertainty is affecting decisions made by households and businesses in Australia.’
The RBA board is meeting again on May 19 and 20.
