BOQ shifts rate outlook on tariff turmoil
Make us a preferred source
Make us a preferred source on Google
The news: The Bank of Queensland (BOQ) has issued a change in its view on rates as the fallout from US President Trump upends markets across the globe, and now expects the cash rate to fall to 3.1% by year-end.
The numbers: BOQ chief economist Peter Munckton said that the announcements are likely to result in weaker economic growth, and that by end-April, the bank expects inflation will have returned close to the RBA’s 2.5% CPI target. On economic growth, the BOQ revised down its expectations for Australia to 0.25-0.5 percentage points weaker over the next 12-18 months
While the bank had previously forecast just two quarter percentage point reductions (with the first having already taken place in February) for this monetary easing cycle, it is now revising down its outlook on the cash rate. Munckton said that the cash rate will go to 3.1%, hitting that level by year-end.
He added that the budget deficit will be wider than that outlined in Treasurer Jim Chalmers' budget, and that more substantive reductions in the cash rate (to 1.5%-2.5%) might be necessary.
The context: Munckton explained that Trump’s tariff announcement has changed the balance of economic risk, and that while direct tariff impacts on Australia may be low, the “bigger issue for Australia is how the world economy is impacted by higher US tariffs.” Munckton cited the impact of the tariffs on the Chinese economy, countries becoming less dependent on trade, a global growth slowdown and softening inflation as key factors likely to impact the Australian economy.
Without changing their forecast as yet, a NAB note today also said that last week’s developments tipped risks to both the growth and inflation outlook to the downside. Citing a low unemployment rate and favourable core inflation expectations, NAB maintained its prediction of a 25 basis point rate cut in May and a further 75 basis points of easing through to February 2026.
Earlier on Monday, Chalmers indicated that the RBA could cut interest rates up to four times this year, including a 50 basis point cut in May.
Addressing reporters as currency, stock and bond markets continue roiling on the back of Trump’s tariffs, Chalmers said that while Australia’s economy is well placed to weather the shock, he expects GDP to take a hit and that prices are likely to also be impacted. "I don't predict or pre-empt those decisions, but the market is certainly now expecting multiple interest rate cuts over the course of the year, beginning in May."
New analysis released by the Treasury indicates that the impact of US tariff policy changes on the Australian economy is a decline of 0.1% in real GDP and a 0.2 percentage point lift in inflation in 2025 compared to a situation without tariffs. In the medium term, GDP is expected to be permanently lower, but the inflation lift is not expected to be maintained.
What they said: "I can assure people that in a world of volatility and uncertainty, Australia is better placed and better prepared than our peers. [But] everyone with a super fund, everyone with shares, I think probably every Australian, is seeing what's happening on global share markets and in our own sharemarket, with a degree of trepidation," Chalmers said on Monday.
The sources: BOQ rates view note, ABC, Capital Brief
