Major interest rate development millions of Aussie homeowners need to know about after Trump tariffs

Financial markets are now widely expecting a May interest rate cut as a result of Donald Trump’s broad-based tariffs of at least 10 per cent.

The 30-day interbank futures market is now regarding a May 20 rate cut from the Reserve Bank of Australia as an 85 per cent chance. 

This would see the cash rate fall to 3.85 per cent for the first time since June 2023, following the RBA’s next two-day board meeting. 

Prime Minister Anthony Albanese has confirmed Australia would not retaliate to the 10 per cent tariffs on Australian exports, on top of the 25 per cent import duties on steel and aluminium. 

‘A reciprocal tariff would be zero, not 10 per cent,’ he said.

While the American tariffs could push up inflation, central bankers are more concerned about global trade wars slowing economic growth. 

This would especially be the case in Australia, which relies on global trade for its prosperity. 

Reserve Bank of Australia Governor Michele Bullock made this point on Tuesday, as the RBA left rates on hold at 4.1 per cent. 

‘We do know what to be worried about,’ she told reporters in Sydney.

‘A trade war with escalating tariffs and reciprocal tariffs is going to slow down the growth in world trade and Australia as a small, open economy has benefited massively from open trade.

‘So, it’s not good for us, a world trading system that is fragmenting, that’s not good for us.’

AMP chief economist Shane Oliver said the RBA would be inclined to cut rates in May if the American tariffs didn’t weaken the Australian dollar, and make imports more expensive.

‘Assuming that Australia does not retaliate and the $A does not crash then Trump’s tariffs pose more of a threat to growth than causing higher inflation here and so add to the case for more RBA rate cuts,’ he said.

The share market has reacted badly to Trump’s tariffs announcement, with the benchmark S&P/ASX200 plunging by 1.99 per cent in the opening half-hour of trade on Thursday morning. 

The Australian Agricultural Company, Australia’s largest integrated beef producer, did even worse with its share price plummeting by 3.18 per cent to $1.37.

Dr Oliver said the Australian share market was likely to fall further as the US tariffs risked sparking an American recession.

‘Given the even bigger threat to global growth it looks like share markets will have a further leg down,’ he said.

‘Our assessment remains that shares will have a 15 per cent-plus correction measured from this year’s high. 

‘A 10 per cent fall in US shares was not enough to put pressure on Trump but a 15 per cent plus fall likely will at some point resulting in some moderation in the tariffs and refocus on the market positive aspects of his agenda, like tax cuts and de-regulation.’