Australia’s central bank is prepared to take decisive action if potential U.S. tariffs adversely affect global trade and threaten domestic growth, a senior official indicated on Wednesday. This statement comes a day after the Reserve Bank of Australia (RBA) surprised the markets by indicating a willingness to ease monetary policy.

During a speech in Sydney, RBA Deputy Governor Andrew Hauser noted that the direct impact of U.S. tariffs on Australia is expected to be limited, primarily because Australia has a trade deficit with the United States, unlike many other economies. He emphasized that much would depend on how China responds to these tariffs, suggesting that stimulus policies from Australia’s largest trading partner could enhance economic activity within Australia.

Hauser cautioned, however, that the most severe scenario, one of a comprehensive global trade war, would significantly harm global trade and economic activity. He underscored the RBA’s readiness to adjust its monetary policy “with force if needed” to maintain low and stable inflation and achieve sustained full employment.

The RBA has maintained interest rates at 4.35% for over a year, while many global counterparts have opted for easing. Following its recent dovish signal, the market has begun to speculate on potential easing measures as early as February due to softening economic growth.

Regarding the impact of U.S. tariffs on Australian inflation, Hauser described the effects as “ambiguous,” with potential outcomes that could drive inflation in either direction. However, he remains optimistic, stating that the likelihood of plunging into another global depression is low due to Australia’s robust advantages in raw materials and services. Hauser also highlighted the country’s proven ability to adapt its trading relationships and the effectiveness of its flexible exchange rate and independent monetary policy in absorbing shocks.

In summary, while uncertainties loom due to potential U.S. tariffs, Australia’s economic fundamentals and strategic responses provide a sense of resilience and hope for future stability. The RBA’s proactive approach showcases a commitment to safeguarding the economic wellbeing of Australia amidst global tensions.