The bank now anticipates the cash rate will drop to 3.35 per cent by August, with 25 bp cuts in May, July and August. If conditions worsen, a more aggressive 50 bp cut in May could be on the table.
“We would not rule out a 50 bp cut in May, if sentiment sours and the global growth outlook deteriorates sufficiently. While the RBA does not target market sentiment … Conditions that give rise to negative market sentiment often see RBA easing,” ANZ said.
ANZ’s revision comes as global markets plunged on Donald Trump’s so-called Liberation Day, with US stocks suffering their worst losses since the pandemic crash. The Dow Jones tumbled 1,679 points (4 per cent), the S&P 500 fell 4.8 per cent, and the Nasdaq sank 1,050 points (6 per cent) – its worst day since March 2020. European markets also slumped, with the FTSEurofirst 300 dropping 2.7 per cent and London’s FTSE 100 down 1.6 per cent.
As concerns over a global slowdown grow, the International Monetary Fund (IMF) issued a stark warning, with managing director Kristalina Georgieva stressing that US tariffs pose a “significant risk to the global outlook”, urging the US and its trading partners to avoid further economic harm.
“We are still assessing the macroeconomic implications of the announced tariff measures, but they clearly represent a significant risk to the global outlook at a time of sluggish growth. It is important to avoid steps that could further harm the world economy,” Georgieva said.
“We appeal to the United States and its trading partners to work constructively to resolve trade tensions and reduce uncertainty.
“We will share the results of our assessment in the World Economic Outlook, which will be published at the time of the IMF/World Bank Spring Meetings later this month”.
Meanwhile, the Organisation for Economic Co-Operation and Development earlier warned that if the US and its trading partners raise tariffs by 10 percentage points, global gross domestic product could fall by 0.3 per cent within three years, while inflation could rise by an average of 0.4 percentage points each year over the same period.
For Australia, the biggest risk isn’t direct trade with the US but the broader impact on global growth, consumer confidence and business investment.
ANZ noted that commodity-exporting nations like Australia typically feel the effects of global downturns through falling export prices rather than volumes, meaning nominal gross domestic product (GDP) growth could soften even if real GDP holds steady.
“Our broader GDP growth, unemployment and inflation forecasts will be little impacted. Rather, the cash rate (and potentially the AUD) will make the adjustment to limit the impact on the real economy,” ANZ said.
“For commodity exporters like Australia, it is typically the price of exports that adjusts to global growth shocks more than volume. That means nominal GDP growth will be softer even if real GDP growth is little changed. That the economy is entering this period with growth in Q4 2024 around trend, near full-employment and moderating inflation is helpful.”
Following Trump’s announcement on Thursday, markets increased their bets on an RBA rate cut, pricing in a move to 3.85 per cent at the next meeting, up from a 70 per cent chance prior to the tariff news.
Some analysts now predict up to four rate cuts this year, including Tim Toohey, head of macro and strategy at Yarra Capital Management, who, on Thursday, raised his forecast from two cuts previously.
"We are adding additional easing in our forecasts and now expect the RBA to ease in May, August, September and November. If the RBA were uncertain on Tuesday, then their heads must surely be spinning today," Toohey said.
HSBC’s Paul Bloxham also announced on Thursday that as a result of Liberation Day, he now sees the RBA cutting by 25 bp at its next meeting in May (previously July) and following this up with three more cuts over subsequent quarters taking the cash rate to 3.10 per cent by early 2026.
Bloxham explained that although Australia faces only the minimum US tariff, and commodities are substitutable across markets, offering the economy some protection, “the country is still highly exposed to the global growth outlook, and particularly to growth in Asia”.
“We see downside risk to global growth as a downside risk to local inflation,” the economist said. “The effect of the global shock is also already impacting local household wealth through a high exposure to global equities via households’ superannuation savings.”
Similarly, AMP’s Shane Oliver said on Friday that while he was already expecting another cut in May, August and then February, taking the cash rate to 3.6 per cent, “there is now a good chance we will see another one or two cuts on top of this as a result of the threat to growth posed by Trump’s tariffs”.
The RBA held rates steady this week, but governor Michele Bullock struck a more hawkish tone, warning that escalating US trade tensions could further complicate the outlook.
She cautioned that much will depend on how other countries react to escalating US trade tensions, stressing that the current wave of trade restrictions is likely to have lasting effects.
In its financial stability review published on Thursday, the central bank again referred to the US, noting that “elevated geopolitical and policy uncertainty in major economies has the potential to interact with existing vulnerabilities and cause risks to rapidly materialise”.
“Ongoing uncertainty surrounding the imposition of tariffs and other trade restrictions between the United States and other major economies could have a chilling effect on business investment and household spending decisions and pose substantial headwinds to the outlook for global economic activity,” the RBA said.
“There is also considerable uncertainty about the effects of possible fiscal, regulatory and other government policy changes on global growth and inflation. In addition, the global financial system remains exposed to potential disruptions from operational incidents and climate change shocks.”
Before Liberation Day, economists were divided on the timing of future rate cuts – some expected no cuts until the second half of the year, while others saw May as the most likely window for a move.
