Major bank's brutal call to RBA boss over looming rate cut decision
Ahead of next week's monetary policy board meeting, Westpac chief economist and former RBA employee Luci Ellis has called out the central bank, questioning: 'What do they expect to learn in the next five weeks? (if they don't cut)'
'Could you front a media conference and explain why you decided to wait another five weeks to cut rates, when it was just a choice between now and August? … the answer is likely to be 'no', she said.
'The arguments to wait are not compelling, so we do not think that case should win the day.'
The RBA is set to meet on Monday and Tuesday next week, and is expected to reduce the official cash rate by a further 25 basis points, bringing the official cash rate down to 3.60 per cent.
Ms Ellis said the arguments against a hold, including waiting for quarterly economic data won't hold up.
'Nothing the RBA will learn in the subsequent five weeks will change the decision to cut,' she said.
'And explaining to the assembled mainstream media that you hesitated because (in essence) unemployment is 'too low' and employment growth is 'too strong' to do so will not land well with that audience.'
Mortgage holders received a major boost last week with inflation coming in significantly lower than forecast, opening the door for a July rate cut.
The latest consumer price index rose by 2.1 per cent for the 12 months to May 2025, beating expectations of 2.3 per cent.
The all-important trimmed mean inflation rate, which the Reserve Bank considers when making decisions about the cash rate, came in at 2.4 per cent.
This is the lowest level since November 2021.
Falling inflation data was offset by stronger than expected employment figures which held at 4.1 per cent.
While the RBA runs a dual mandate of both price stability and full employment, too many Australians in a job can be seen as having a negative impact on inflation, as more people can buy a limited amount of items, driving prices higher.
Ms Ellis said a large swing in monthly data, like Australia saw in May can 'tell you enough about quarterly results' even if there is a future upsize surprise.
'Key components of domestic inflation – rents, home-building, insurance and personal services – all surprised on the downside, she said.
'Some of these components are still only measured quarterly and so are locked in for the June quarter read.
'Likewise, another monthly labour force release and the last-ever retail sales number will not change the current view on the economy.
'More information is usually better, but not always by enough to be worth waiting for.'
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