CBA, NAB sound alarm over China as tariffs throw doubt in RBA interest rate cut
The heads of Commonwealth Bank (CBA) and NAB have sounded the alarm over the impact Donald Trump's tariffs on China might have on future interest rate cuts here. While homeowners received their first slice of mortgage relief last month, additional reductions in the official cash rate might not come to fruition.
A Yahoo Finance poll found 62 per cent of homeowners felt the Reserve Bank’s (RBA) 0.25 drop in February wouldn't make much of a difference to their overall budgets. But CBA’s chief Matt Comyn said the year ahead might not bring further mortgage relief due to the US president’s foreign policy.
Australia has already been caught up in the steel and aluminium import tariffs, but more pain could flow from the taxes imposed on China and America’s closest neighbours.
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“We’re relatively well insulated versus many other countries, but we won’t be entirely from China, which was already struggling to gain [economic] momentum before the administration change,” he said at the Australian Financial Review’s Banking Summit.
Comyn is concerned there could be a “couple of years” of slower global growth as a result of tariffs on China.
“[The US is] setting a frenetic rate of change, and so we’re thinking there’ll be lots of false signals,” Comyn said
“Markets do not like the uncertainty that is prevalent at the moment, so I think we’ll see some pretty wild swings.”
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Impact of US vs China trade war on interest rates
Andrew Irvine, the head of NAB, was similarly concerned that local inflation could spike thanks to the US vs China trade war, which could see the RBA look at rate hikes again.
“If we do have a global tariff war and all that drama and tit-for-tat stuff does turn into bilateral trade reducing and 25 per cent tariffs on a vast majority of goods and services, that’s highly inflationary,” he said at the same summit.
“And if global inflation ticks up, what that means is that interest rates will not reduce to the level they otherwise would ... if this tariff does happen, we could be at the end of the reduction cycle.”
CBA has predicted there could be three more interest rate cuts from the RBA during this cycle, while NAB thinks there could be four more.
That would take the official cash rate to 3.35 per cent and 3.10 per cent, respectively.
