HSBC moves to February rate cut prediction due to Trump tariffs
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The news: HSBC chief economist Paul Bloxham has brought forward his expectations of a rate cut from the Reserve Bank of Australia to February following a ramping up of US tariff uncertainty and better-than-expected local inflation data.
Bloxham said the global backdrop had shifted "markedly" in the last few days in terms of trade developments, which had prompted a revision of the rate cut expectation as it threatened downside risk to the global economy.
This is the first revision in rate cut expectations from HSBC since May 2024.
The numbers: Inflation data released last week showed the trimmed mean hit 3.2% on an annual basis in the fourth quarter of 2024, above the 2% to 3% RBA target band but below the 3.4% expected by the central bank. Bloxham reflected this was "still too high" but moving towards target faster than the RBA thought.
This CPI figure was "low enough to shift the balance of risks, in our view, increasing the chance of a cut in February". HSBC had previously expected the first cut in the second quarter, but had held off shifting its prediction due to a tight labour market and strong jobs growth in December.
HSBC now expects a 25 basis point cut in February followed by one more cut in 2025 likely in the third quarter, with inflation to fall slowly and the jobs market to remain tight. A final cut in the cycle is expected for the first quarter of 2026.
What they said: "The escalation of trade tensions creates clear downside risk for the global economy. Although it is still early days to quantify the impact of these policy changes, the scale and breadth of the tariffs on types of products and countries suggests is likely to be significant," Bloxham said.
"We see it as enough to tip the RBA's view in favour of starting to support the economy a little earlier than we had previously thought," he said.
The source: HSBC Global Research note
