From Singapore: The world's leading central banks gather this week facing a crisis of their own making. Not because of their decisions, but because they cannot make them freely. President Trump's tariff regime has created a stranglehold on monetary policy globally, forcing policymakers to choose between two unpalatable options: raise rates and risk triggering the very slowdown their tariffs threaten, or hold steady and allow inflation to fester.
The Reserve Bank of Australia is among those at the crossroads. Its board will meet on Tuesday 17 March, with policy decision released at 2:30pm AEDT. The RBA has already moved once, increasing the cash rate target by 25 basis points to 3.85 per cent at its previous meeting. Now it faces the question that every major central bank is wrestling with: whether to hike again immediately or wait for the dust from America's trade wars to settle.
The dilemma is acute. Inflation remains above target and the labour market is still tight, keeping pressure on policymakers, though global tensions add uncertainty and domestic economic strength is likely to drive the RBA's decision. Domestically, there is a case for tightening. The RBA has revised its inflation forecasts higher, now expecting trimmed mean inflation at 3.7 per cent in the year to June 2026, up from 3.2 per cent previously. Inflation is not expected to return to target until well into 2027.
But that is only half the story. Trump's trade policy remains in flux, and the uncertainty itself is damaging. The US Supreme Court in February 2026 struck down IEEPA tariffs, and President Trump imposed a new temporary 10 percent tariff under Section 122 of the Trade Act of 1974 after the Supreme Court ruling on IEEPA. The administration has also threatened to increase the tariff to 15%. Rather than providing clarity, this shifting legal foundation has created a new form of uncertainty.
For Australia, the stakes are particular. Private demand has been stronger than expected, with global conditions proved more resilient than many feared after the tariff announcements last year, and financial conditions have been more supportive of growth than anticipated. This suggests the catastrophic scenarios sketched last year never fully materialised. Yet the RBA must account for the real possibility that circumstances could deteriorate rapidly if trade tensions reignite.
The broader lesson is uncomfortable for central bankers everywhere. The world's central banks have traded one constraint for another. For years, they operated within post-2008 orthodoxy: abundant quantitative easing, negative rates, financial repression. Now they face a different cage. Unilateral US trade policy, implemented through executive action with minimal regard for international law or institutional precedent, has become a variable no central bank can control. They can only respond, always after the fact, always with incomplete information.
Global conditions proved more resilient than many feared after the tariff announcements last year, and financial conditions have been more supportive of growth than anticipated, according to the RBA's own assessment. That is fortunate. But fortune is not policy. For the central banks of Australia and beyond, the next few days will require careful judgment under conditions of profound uncertainty. The choice before the RBA is not between two good options. It is between accepting the lesser of two risks, in a game someone else designed.