Australia's Reserve Bank on U.S. Election Inflation Implications

SYDNEY (Reuters) – Australia's top central banker stated on Thursday that determining the inflation implications of the U.S. election for Australia is currently difficult, but policymakers will monitor the situation closely and respond when necessary.

In a hearing before lawmakers, Reserve Bank of Australia Governor Michele Bullock mentioned that there had been no change in the central bank's inflation outlook. They expect inflation to sustainably return to the target range by 2026.

"We cannot be setting policy on the basis of things that could happen or might not happen," Bullock said. "I think we have to wait and see what actually does happen in terms of these events and respond as necessary."

Former U.S. President Donald Trump is anticipated to return to the White House with plans for broad import tariffs and additional tax cuts, which analysts predict will boost the U.S. economy in the short term but may lead to higher inflation and larger budget deficits.

When questioned about whether Trump's policies would result in higher interest rates in Australia for a longer duration, Bullock stated she did not have a definitive opinion on that matter.

Australia's central bank has kept its policy unchanged for one year, deciding that the current cash rate of 4.35%—up from 0.1% during the pandemic—is adequate to bring inflation to its target band of 2-3% while maintaining employment gains.

Headline inflation decreased to 2.8% in the third quarter, back within the target range for the first time since 2021, primarily due to government electricity bill rebates. However, underlying inflation remains at 3.5%, still above the target midpoint, prompting the central bank to maintain a hawkish stance, indicating that no policy measures are off the table.

Swaps indicate that the first easing may occur in May next year, lagging behind other major economies.

Bullock noted that the central bank had not conducted detailed scenario analyses regarding the effects of a Trump presidency on monetary policy, as the outcomes could vary significantly. "It might be inflationary in some ways, but it might be deflationary in others if China ends up badly affected by this," Bullock commented.