Odds are shortening for the Reserve Bank to cut rates by 50 basis points at its next meeting as global financial turmoil weighs heavily on Australians.

Though most economists do not view an Australian recession as a realistic chance, the prospect of lower growth and higher unemployment as a result of US President Donald Trump’s tariffs has raised expectations of an outsized RBA cut.

Deutsche Bank on Tuesday became the first major bank to tip Australia’s central bank to lower rates by half a percentage point in May.

Australia is relatively well-positioned to weather the direct impact of US tariffs, but is vulnerable to a slowdown in key trading partners in Asia, especially China, said chief economist Phil O’Donaghoe.

“An aggressive RBA response is appropriate, and consistent with precedent,” he said.

Markets have priced in the chance of a 50 basis point cut at 96 per cent.

Opposition Leader Peter Dutton attacked Treasurer Jim Chalmers for pointing this out, as the coalition tries to position itself as a superior economic manager in a time of economic uncertainty.

“The Treasurer is out there talking about a 50-point reduction in interest rates, which means, obviously, that he sees a recession coming for our economy,” Mr Dutton said.

“He wouldn’t be talking about 50 points as a reduction next month if he didn’t believe that there was going to be a significant souring of the Australian economy on his watch.”

Dr Chalmers’ comments on Monday were in the context of market pricing and he was at pains to point out it was neither a prediction nor a suggestion of his own.

Updated Treasury forecasts did not predict a recession in Australia and growth was actually set to accelerate over the coming years, he added.

Mr Dutton said Prime Minister Anthony Albanese was out of his depth when it comes to managing the economy.

“As we get closer to the election, I think Australians will continue to focus on who is better able to manage the economy, and therefore to manage the cost-of-living crisis that Labor has created,” he said.

Mr Dutton cannot rely on the traditional assumption that the Liberals are superior economic managers, with a recent survey by pollster Redbridge finding 31 per cent of respondents thought Labor’s economic vision was better for the nation.

This compared with 29 per cent of survey respondents who thought the coalition had a superior plan, according to the Redbridge polling.

The prime minister hopes incumbency works to his advantage in uncertain times, arguing the coalition’s plans to cut spending would make things worse.

At a press conference in Sydney, Mr Albanese danced around the ‘r-word’ when asked if he would explicitly rule out a recession.

“We have, as a government, continued to see the economy grow,” he said.

Overnight, Mr Trump threatened an extra 50 per cent tariff on imports from China, unless it withdrew the 34 per cent duty it set on US goods last week.

This prompted another sell-off on Wall Street, and some major investment banks say a recession in the US is now more likely than not.

Global turmoil is already impacting the confidence of Australian households, with Westpac’s consumer sentiment index falling six per cent in April.

Economists Greg Jericho and Stephen Koukoulas and Greens senator Nick McKim called for the RBA to use its powers to convene an emergency meeting and cut rates immediately.

“People are hurting already, and every week of delay increases the risk of a recession which will hurt Australians even more,” Senator McKim said.

Under the Reserve Bank Act, the chair of the Monetary Policy Board – which is the central bank’s governor Michele Bullock – may convene a meeting at any time.

Asked if Ms Bullock was considering calling an early rates meeting, an RBA spokesperson said the bank was watching developments closely and continued to prepare for the May 19-20 meeting.

Jacob Shteyman
(Australian Associated Press)