Trade war would damage Australia’s economy: central bank governor

SYDNEY (Reuters) – A serious escalation of international trade tensions would “damage” the Australian economy, the country’s top central banker warned on Wednesday, amid a deepening tariff dispute between the United States and China.

Volatility has spread across global financial markets since U.S. President Donald Trump first slapped import tariffs on aluminum and steel products last month, and later singled out China with extra duties.

Reserve Bank of Australia (RBA) Governor Philip Lowe said in a speech that an escalation of the trade spat would hurt global growth and cloud the outlook for the domestic economy.

The RBA has forecast stronger gross domestic product growth in 2018 than the 2.4 percent pace in the A$1.8 trillion economy seen last year.

“There are, though, some uncertainties around this outlook, with the main ones lying in the international arena,” Lowe said in a speech in Perth.

The RBA has left interest rates at a record low 1.50 percent as it awaits a pick-up in economic growth and inflation. Lowe reiterated on Wednesday that policy is likely to remain accommodative for some time yet.

“The Reserve Bank Board does not see a strong case for a near-term adjustment in monetary policy.”

Even so the next move in rates was more likely up than down, he added.

“The last increase in the cash rate was more than seven years ago, so an increase will come as a shock to some people,” Lowe told a business lunch.

“But it is worth remembering that the most likely scenario in which interest rates are increasing is one in which the economy is strengthening and income growth is also picking up.”

Wage growth is crawling near the slowest pace on record, putting a lid on inflation which remains below the RBA’s 2-3 percent target band.

“A continuation of the current stance of monetary policy in Australia will help our economy adjust and should see further progress in reducing unemployment and having inflation return to target,” Lowe added.

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