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Welcome to Bendigo Bank’s monthly market update for April, with the latest news on the national economy and global markets, and their relevance locally.

Today, we’ll have a look at;
... the latest RBA cash rate decision,
... some comments on the Federal Budget,
... and the impact that tariffs are having on different regions.

There were no surprises with the ‘rates on hold’ message from the RBA yesterday, given how clear they were in February that (while they have kicked off the easing cycle) it’s going to be a cautious path ahead.

We still expect the second rate cut on May 20th justified by another benign read for quarterly inflation (to be released on April 30th) and then hopefully another cut in August, until core inflation starts to show signs of bottoming out (maybe as early as November).

The three factors that continue to suggest only a shallow dip for interest rates from here are; 
... Resilient labour markets, with the unemployment rate remaining between
4 and 4.1 %
... Extreme policy uncertainty overseas especially around tariffs, and
... Ongoing public spending at a state and federal level, meaning fiscal policy is potentially doing some of the work the RBA would otherwise have done via monetary policy.

Last week’s federal budget had very few surprises, and the tax cuts announced were in response to bracket creep, but we did move from surplus to deficit… although the deficit for FY25 was only one per cent of GDP, followed by
1 ½ % next financial year… so our debt profile remains sound in the short term
(with gross debt to GDP peaking below 37%), keeping our AAA credit rating secure.

This is a much stronger debt position than forecast coming out of the pandemic, but will require greatly improved productivity in the economy to afford necessary spending in the medium term.

The focus has quickly moved from the budget to the impending federal election, and also to US trade policies, with hefty US tariffs rolled out on a so-called reciprocal basis: and as the RBA noted in their policy summary, the uncertainty of their impact makes the job of setting the cash rate much more complex.

Part of that uncertainty is which countries may be exempted from tariffs and for how long, but as noted here in previous videos and reports, Australia is one of the least exposed to tariffs directly, given less than 5% of our goods exports head to the USA, so it will be indirectly (via our major trading partners) that we are likely to be impacted.

On that front there are upside and downside risks… will inflation around the world edge higher with tariffs, or will that primarily be seen in the US… given history shows us that tariffs are generally paid for by consumers in the country imposing them.

Conversely, will global demand slow down sharply, meaning all the more need for RBA rate cuts?

Recent forecasts from the RBA and the OECD do show slower growth ahead in the United States and to a lesser extent the global economy, but not at this stage a slowdown for our major trading partners.

This will be a key variable for the rest of the year and will depend on the degree to which countries retaliate to US tariffs…
or perhaps seek more reliable trade partners elsewhere.

Amid all this uncertainty volatility on financial markets is high, but the star performer on the markets has been the safe haven of Gold… trading at a record high around US $3150 an ounce: up 40% in a year, and up 45% in Australian Dollars terms!

And lastly, residential property prices rebounded by 0.4 % in March… and so for the first quarter of 2025 are up ½ % in capital cities, and 1.4% in the regions to fresh record highs…suggesting the dip we saw in the last quarter of 2024 is behind us.

Good news for some, but not for housing affordability.

And that’s the market update from Bendigo Bank.