- President Trump has escalated the trade war with tariffs on another $US200 billion of Chinese goods.
- Research from KPMG suggests the US-China trade war could take $36 billion from the Australian economy.
- Two weeks ago, the RBA cited trade tensions as a “material risk” for the global economy at its September board meeting.
- On the domestic front, committee members maintained their cautiously optimistic forecasts and said the next rate move is still likely to be up.
The latest tariff announcement by the Trump administration marks a significant escalation in the US-China trade war.
And minutes from the RBA’s September board meeting, released this morning, show global trade tensions were highlighted by committee members as a key risk earlier this month.
“Members observed that there were still significant tensions around global trade policy and that this represented a material risk to the outlook,” the minutes said.
Around the same time this morning’s minutes were released (11:30am AEST), Reuters reported that China’s vice premier Liu had commissioned a meeting to discuss a response.
Chinese stock markets also opened at 11:30am and posted gains in early trade. The Hang Seng index in Hong Kong initially fell by more than 1% before rebounding.
Elsewhere in today’s minutes, the RBA largely reiterated its glass half-full approach to the domestic economy.
As usual, committee members held the view that the next move in interest rates is likely to be up, not down.
“Based on the forecasts and associated risks, members assessed that the current stance of monetary policy would continue to support economic growth and allow for further progress to be made in reducing the unemployment rate and returning inflation towards the midpoint of the target,” the minutes showed.
“However, since progress on unemployment and inflation was likely to be gradual, they also agreed there was no strong case for a near-term adjustment in monetary policy.”
The board also noted that the Australian economy had reaped the benefit as commodity prices remain elevated, but US-China trade tensions “continued to be a source of uncertainty”.
Today’s minutes were a little out-of-date, given they preceded the strong print for Q2 GDP growth earlier this month along with last week’s bumper jobs report. And since the board meeting, two more major banks — ANZ and CBA — have joined Westpac in raising mortgage interest rates.
But according to Paul Dales from Capital Economics, the recent economic data points “probably won’t change the RBA’s thinking much”.
“At the margin, though, the recent run of good data may have boosted the RBA’s confidence in its own, relatively optimistic economic forecasts,” Dales said.
Despite that, Dales — along with many other economists — has pushed back his forecasts for the next RBA rate hike.
“We suspect GDP growth will slow back to 2.5% next year and that underlying inflation will stay below the 2-3% target for longer than the RBA expects,” he said.
The full RBA minutes can be found here.
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