A former Reserve Bank official has suggested her former employer has been running a fear campaign about inflation.
Reserve Bank Governor Michele Bullock confirmed last month that her board considered a rate hike, but not a rate cut, as it left the cash rate at a 12-year high of 4.35 percent.
The word “inflation” was also mentioned 24 times in the accompanying statement and 60 per cent of consumers surveyed this month by Westpac expect another rate rise.
Fears of a rate hike have intensified after new data showed inflation in the year to May rose to 4 percent, putting it further above the RBA’s 2 to 3 percent target.
But Westpac chief economist Luci Ellis, a former RBA deputy governor who worked at the Reserve Bank for three decades, said the fact the European Central Bank cut rates last month meant Australia was more likely to follow suit.
“The Reserve Bank board will also take into account that other central banks have already begun to cut rates or are actively considering doing so soon,” he said in a video on Friday.
‘They don’t have to move in lockstep with their overseas counterparts now, but the experience of other central banks has provided a guide to how things might play out in Australia.
“We saw a common global inflationary shock and so they will learn from other places in terms of thinking about how quickly inflation could come down.”
A former Reserve Bank employee has suggested her former employer has been waging a fear campaign about inflation (Luci Ellis pictured left with former governor Philip Lowe)
Dr Ellis, who could have become Reserve Bank governor had she remained at the RBA, expects rates to remain unchanged at the next meeting in August.
“Now, one should never say never and if inflation ends up being stronger than we expect, the Reserve Bank board may feel it needs to act, but that is not our core view,” he said.
June quarter inflation data, due on July 31, could make a rate cut in 2024 more likely if the consumer price index is below the March quarter’s 3.6 percent level.
“Inflation is too high, but it is coming down. If inflation turns out roughly as we expect in the June quarter, that will mean it is coming down at the rate the Reserve Bank expects,” Ellis said.
‘Such an outcome would support the Reserve Bank to keep rates unchanged in the near term before eventually starting to cut them as inflation begins to approach its 2 to 3 percent target range.
“You can never predict the future with any certainty, but that is the outcome we believe is most likely.”
Both Westpac and Commonwealth Bank expect a rate cut in November, which would be the first easing since November 2020 during the Covid pandemic.
But the NAB has adjusted its forecasts so that the first rate cut will come in May, rather than November, thereby delaying the easing of the most aggressive rate increases since the late 1980s.
Reserve Bank Governor Michele Bullock confirmed last month that her board considered a rate hike, but not a rate cut, as it left the cash rate unchanged at a 12-year high of 4.35 percent.
Last month ANZ updated its forecasts for a rate cut in February.
Ms Bullock confirmed in June that a rate increase, but not a rate cut, was discussed.
“Yes, the board of directors discussed the case for raising interest rates at this meeting,” he told reporters.
“No, the possibility of a cut has not been considered,” he said.
The Westpac-Melbourne Institute’s consumer sentiment survey for July showed 60 per cent of 1,200 respondents expected another rate rise, suggesting the RBA’s inflation warnings are having some effect.
Ms Bullock did not mention the word “inflation” once at this week’s Pacific Banking Forum dinner in Brisbane, but she has previously spoken about how to manage consumers’ inflationary expectations so they spend less.