Australian consumers are increasingly boosting their spending as disposable income and wealth continue to rise, providing strong support for Australia's economic growth. However, Reserve Bank of Australia (RBA) Governor Michele Bullock has indicated that if this trend of strengthening consumer expenditure continues, the central bank may slow the pace of monetary policy easing. Currently, bond and interest rate futures traders are widely betting that the RBA will initiate a new rate-cutting cycle, but persistently strong consumer data could significantly cool market expectations for rate cuts, potentially impacting Australia's robust stock and bond markets that have flourished this year.
"We're seeing the private sector beginning to show greater growth, and I think that's positive," Bullock said after a lecture in Perth on Wednesday evening. She referenced the second-quarter Australian GDP data released this week, which showed that consumers played a major role in driving better-than-expected economic output. Contributing factors include rising real disposable income as inflation continues to decline, along with stronger wealth effects from steady home price gains and a buoyant stock market in recent months.
Data released on Thursday also showed that Australian household spending rose for the third consecutive month in July and accelerated, driven primarily by a significant increase in demand for services. Regarding the implications for RBA monetary policy outlook, Bullock stated that stronger consumer momentum means "if this trend continues, there may not be much more room for rate cuts. But it entirely depends on actual economic conditions."
The Reserve Bank of Australia conducted its third rate cut of the year last month, lowering the benchmark cash rate to 3.6%. At that time, Bullock indicated after the rate decision announcement that several more rate cuts might be needed to achieve the RBA's employment and inflation targets. Following Bullock's dovish comments then, economists widely expected the RBA to hold steady later this month, followed by another cut in November, with potential further easing thereafter.
Before the September 29-30 meeting, monetary policymakers will thoroughly analyze consumer and business confidence surveys, latest employment data, and August monthly CPI figures.
Regarding global trade conditions, Bullock noted that the RBA's worst-case scenario has not materialized since most countries have not retaliated against President Donald Trump's tariff policies. However, she described the tariff policies as still "threatening" to Australia. The Trump administration has imposed the lowest reciprocal tariffs globally on Australia, one of America's largest long-term trading partners, with Australia receiving just a 10% global baseline tariff rate.
"The issue with the U.S. government's tariffs is not just that tariffs globally have suddenly risen significantly, but also the unpredictability of Trump's domestic and foreign policies and what purposes they will be used for. Because they're not necessarily even used for trade purposes. They're used for all sorts of purposes," Bullock said.
Therefore, Bullock stated that Trump's global tariff policies remain "a huge cloud of uncertainty hanging over the world economy." So far, Australian exporters have largely absorbed the impact of the Trump administration's tariff policies, as demand for Australia's core resource products remains strong in markets outside the United States.
Data released on Thursday showed that the country's trade surplus expanded to A$7.3 billion (approximately $4.8 billion) in July, driven by significant expansion in non-monetary gold and natural gas exports.