A former top official with the Reserve Bank is now predicting a Melbourne Cup Day rate hike after her former boss Michele Bullock hinted at a tougher approach to inflation.
Luci Ellis was, until last month, an RBA assistant governor in charge of economic policy.
Westpac’s new chief economist, who first joined the Reserve Bank in 1991, is now predicting a November 7 rate hike.
‘We assessed that it would take a significant upside surprise to induce the RBA Board to raise rates at the November meeting,’ Ms Ellis said.
‘So yes, I’ve seen enough to make my first-ever rate call to be a prediction of a hike.’
Ms Ellis on Thursday joined Commonwealth Bank, ANZ and NAB in predicting a Melbourne Cup Day rate rise – a day after quarterly inflation data showed the consumer price index rising by 5.4 per cent in the year to September.
Luci Ellis was, until last month, an RBA assistant governor in charge of economic policy (she is pictured left in 2020 with former Reserve Bank governor Philip Lowe)
This was only marginally below the 6 per cent level of June, which is frustrating the Reserve Bank given that it has raised rates 12 times since May 2022.
Ms Ellis said the quarterly, or three-month, CPI rise of 1.2 per cent was too high for the RBA’s liking.
‘A 0.1 per cent difference might not seem like a lot, but the underlying detail was sobering,’ she said.
Ms Bullock, who took over as governor last month, on Thursday told a Senate committee she would raise interest rates if there were signs inflation would not return to the top of its two to three per cent target until after June 2025.
‘We’ve made that very clear, even though we haven’t raised interest rates since our last interest rate rise in June, we’ve made it very clear that we might need to go again.’
‘We’re looking at some of the more persistent parts of inflation [and] asking ourselves, ‘Are there signs that those might be coming down in the future?’ she said.
The minutes of the RBA’s October meeting, her first being in charge, suggested it would have ‘low tolerance’ for inflation remaining higher for longer, arguing consumers would keep spending big if they expected prices to stay high.
‘All I was trying to convey, really, was the same thing we’ve been conveying, all along, which is that the longer that inflation remains outside the target band, the more likely it is that inflation expectations might adjust to that,’ Ms Bullock said.
‘You’re right, forecasts have shifted out but we’ve judged that on balance, we think we can manage to bring the economy, slow the economy enough without actually putting it in a recession and an unnecessary increase in unemployment.
‘If we can do it in that time frame, we think that we can get it back and we can keep inflationary expectations.
‘When I say ‘low tolerance’, we always said we have a low tolerance – I don’t think I’ve said anything new there.’
Michele Bullock, who took over as governor last month, on Thursday told a Senate committee she would raise interest rates if there were signs inflation would not return to the top of its two to three per cent target until after June 2025
The Reserve Bank in 1989 raised interest rates to 18 per cent, leading to a recession by early 1991.
A November interest rate rise would be the 13th in 18 months, adding to the most aggressive pace of monetary policy tightening since 1989, that has seen monthly mortgage repayments surge by 63 per cent.
A borrower with an average, $600,000 mortgage will cop a $99 increase should rates rise next month by a quarter of a percentage point.
The Israel-Hamas conflict is stirring concern about petrol prices, with the monthly inflation data from the Australian Bureau of Statistics showing a 19.7 per cent surge in the year to September.
This predated terrorist group Hamas invading Israel on October 7.
‘The latest conflict, that’s also caused some issues,’ Ms Bullock said.