Latest news with #LuciEllis
Perth Now
6 hours ago
- Business
- Perth Now
‘Dirty secret': Big bank's call on rate hold
One of Australia's big four banks has offered a surprising theory as to why the Reserve Bank shocked everybody by holding rates at its last board meeting. Westpac chief economist Luci Ellis says the RBA might have chosen to 'assert its independence' by bucking expectations and keeping the official cash rate at 3.85 per cent at its July board meeting. 'There was no real economic benefit to waiting five more weeks,' Ms Ellis wrote in her latest economic note. While homeowners were left frustrated after the RBA announced its decision to leave the cash rate unchanged despite a cut being widely tipped, Ms Ellis said it was low risk decision for the central bank from a broader economy point of view. 'The dirty little secret of monetary policy is that small differences in the level of interest rates or the timing of changes make essentially no difference for inflation outcomes,' Ms Ellis said. 'If holding the cash rate 100 basis points lower for a year only boosts inflation by 0.2 per cent or so – broadly the result from the RBA's main model – then 25bp higher for five weeks is not even a rounding error.' RBA governor Michele Bullock defended the decision to keep the rate on hold, saying the central bank was waiting for quarterly inflation data. Christian Gilles / NewsWire Credit: News Corp Australia RBA governor Michele Bullock said after the decision was announced that the board wanted to see the June quarter's inflation numbers – to be released by the Australian Bureau of Statistics next Wednesday – before moving on rates. The RBA monetary policy board meets again in August, with the rate decision to be announced on Tuesday August 12. 'By then we will know what the June quarter CPI is and if it comes in as we think it will, a little bit at the margin, we're a little bit worried about, but if it comes in as we think it will, continue to decline, then that validates our easing path,' she said. But Ms Ellis took a swipe at Ms Bullock's argument. 'The third month of CPI data will also not add much new information to support a continuing hold,' she said. 'Recall that even with a partial monthly CPI indicator, once the second month of the quarter is in, you already have two-thirds of the ultimate quarterly read. 'This is true no matter how much of the index is measured monthly.' Former employee Luci Ellis says a cut would've been a rounding error. NewsWire, Monique Harmer Credit: News Corp Australia Markets are now pricing an almost 100 per cent chance of a 25 basis point cut in August following Thursday's weaker than expected jobs figures. The unemployment rate rose to 4.3 per cent in June, beating market expectations of 4.1 per cent, according to the ABS. IG market analyst Tony Sycamore said the bond market was quick to react to Thursday's data, moving up expectations of a rate cut from 80 to nearly 100 per cent in August. 'Today's rise in the unemployment rate pushes it above the RBA's forecast of 4.2 per cent for June 2025 and meets the 4.3 per cent rate the RBA expected by year end,' he said. 'Combined with last month's fall in employment, there are clear signs of deceleration emerging in the labour market.' Australia's Cash Rate 2022 NED-9108-Monthly-Inflation-Indicator Betashare chief economist David Bassanese, who was of the few to predict the RBA would keep the cash rate on hold in July, said Thursday's unemployment data was a 'slam dunk' for an August rate cut. 'We'll need more consistent signs of weakness in both employment and hiring indicators before we can conclude the labour market is turning,' he wrote in an economic note. 'That said, today's result clearly adds to the case for a RBA rate cut at the August policy meeting provided next week's Q2 CPI report is not a shocker.'
News.com.au
6 hours ago
- Business
- News.com.au
RBA rate pause had ‘no real economic benefit': Westpac
One of Australia's big four banks has offered a surprising theory as to why the Reserve Bank shocked everybody by holding rates at its last board meeting. Westpac chief economist Luci Ellis says the RBA might have chosen to 'assert its independence' by bucking expectations and keeping the official cash rate at 3.85 per cent at its July board meeting. 'There was no real economic benefit to waiting five more weeks,' Ms Ellis wrote in her latest economic note. While homeowners were left frustrated after the RBA announced its decision to leave the cash rate unchanged despite a cut being widely tipped, Ms Ellis said it was low risk decision for the central bank from a broader economy point of view. 'The dirty little secret of monetary policy is that small differences in the level of interest rates or the timing of changes make essentially no difference for inflation outcomes,' Ms Ellis said. 'If holding the cash rate 100 basis points lower for a year only boosts inflation by 0.2 per cent or so – broadly the result from the RBA's main model – then 25bp higher for five weeks is not even a rounding error.' RBA governor Michele Bullock said after the decision was announced that the board wanted to see the June quarter's inflation numbers – to be released by the Australian Bureau of Statistics next Wednesday – before moving on rates. The RBA monetary policy board meets again in August, with the rate decision to be announced on Tuesday August 12. 'By then we will know what the June quarter CPI is and if it comes in as we think it will, a little bit at the margin, we're a little bit worried about, but if it comes in as we think it will, continue to decline, then that validates our easing path,' she said. But Ms Ellis took a swipe at Ms Bullock's argument. 'The third month of CPI data will also not add much new information to support a continuing hold,' she said. 'Recall that even with a partial monthly CPI indicator, once the second month of the quarter is in, you already have two-thirds of the ultimate quarterly read. 'This is true no matter how much of the index is measured monthly.' Markets are now pricing an almost 100 per cent chance of a 25 basis point cut in August following Thursday's weaker than expected jobs figures. The unemployment rate rose to 4.3 per cent in June, beating market expectations of 4.1 per cent, according to the ABS. IG market analyst Tony Sycamore said the bond market was quick to react to Thursday's data, moving up expectations of a rate cut from 80 to nearly 100 per cent in August. 'Today's rise in the unemployment rate pushes it above the RBA's forecast of 4.2 per cent for June 2025 and meets the 4.3 per cent rate the RBA expected by year end,' he said. 'Combined with last month's fall in employment, there are clear signs of deceleration emerging in the labour market.' Betashare chief economist David Bassanese, who was of the few to predict the RBA would keep the cash rate on hold in July, said Thursday's unemployment data was a 'slam dunk' for an August rate cut. 'We'll need more consistent signs of weakness in both employment and hiring indicators before we can conclude the labour market is turning,' he wrote in an economic note. 'That said, today's result clearly adds to the case for a RBA rate cut at the August policy meeting provided next week's Q2 CPI report is not a shocker.'
ABC News
09-07-2025
- Business
- ABC News
Former top RBA official says it risks falling into persistent policy error
Millions of mortgage borrowers are not the only ones disappointed by the Reserve Bank's decision to not cut interest rates this month. Former RBA assistant governor Luci Ellis, who is now Westpac's chief economist, described the decision — by a six-to-three majority of the monetary policy board — to wait before cutting rates again as "uncharitable". Westpac and its customers rely on her interpretation of what the Reserve Bank Monetary Policy Board will do with interest rates from meeting to meeting. And, although she suspected the Reserve Bank might wait until August to cut interest rates again, she still switched her forecast to a July interest rate cut after weak monthly inflation figures were released by the ABS a fortnight ago. "One of the reasons I [originally forecast the next interest rate cut in August] was a sense that … they would wait, thinking that they wouldn't use the full information set available to them now," she explained. In other words, Dr Ellis assumed the Monetary Policy Board would wait for the more comprehensive June quarter inflation data before cutting interest rates. "It felt a little bit uncharitable [to forecast that]," she said. However, the majority of six opted for a cautious approach, waiting for that more detailed data to confirm that inflation was falling in line with the Reserve Bank's forecasts, which have it hitting 2.6 per cent — close to the mid-point of the 2–3 per cent target. In a LinkedIn post late on Tuesday, Dr Ellis expressed some frustration over the RBA's decision to leave the cash rate unchanged. "Why on earth wait?" she wrote. In the post-meeting statement, the RBA explained that "the board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis". However, Dr Ellis found that explanation unconvincing. "I think it was quite an unconfident call by the RBA not to move this time," Dr Ellis said. "Unless they really think they might not move in August, it wasn't clear why [the RBA] didn't already have enough information to make that decision." The Reserve Bank Monetary Policy Board said it would "be attentive to the data and the evolving assessment of risks to guide its decisions". "In doing so," the board said, "it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market." The next ABS Labour Force data will be published on July 17, while the June quarter CPI data will be released on July 30. But Dr Ellis argued the RBA was focused almost exclusively on the quarterly inflation data. "This has been the rounds that we've been on for the last 18 months," she lamented. "It shouldn't, in some sense, come down to one number, but each quarter it has. "I mean the number of times that our [interest] rate calls have hinged on [the question], 'Was there a surprise [in that CPI data]?' — it's kind of a clunky way to have to make your [interest] rate forecasts. "But on the other hand, they're at the point where they're trying to work out if inflation really is comfortably inside the 2 to 3 per cent target range, whether it's going stay there, whether it's going to get to that 2.5 per cent [inflation] rate." Dr Ellis believed that was not the best way to make monetary policy decisions. "It's going to keep coming down to the quarterly CPI, and it will mean that people focus so much on that number instead of on the broader assessment of the economy," she cautioned. "And that's a shame." Investment firm, Deutsche Bank, similarly took aim at what it perceived as contradictory language in the RBA's communications. "The [RBA's] post-meeting statement notes that: 'While recent monthly CPI Indicator data suggest that June quarter inflation is likely to be broadly in line with the forecast, they were, at the margin, slightly stronger than expected,'" chief economist Phil O'Donaghoe noted. "We struggle to interpret what the RBA means with this phrase. There were a few economists, however, who anticipated the central bank's decision to leave interest rates unchanged. Betashares chief economist David Bassanese was one of them. "As I have consistently argued in recent weeks, the case to cut rates today was never compelling," he noted. "While consumer spending remains stubbornly weak, the labour market remains strong. "And while the recent monthly CPI report showed a large decline in annual trimmed mean inflation to 2.4 per cent, monthly reports are notoriously volatile. "Only the month prior, trimmed mean annual inflation was at 2.8 per cent." Underlying inflation at 2.8 per cent indicates price growth more broadly in the economy could easily move outside the RBA's 2 to 3 per cent comfort zone. "To my mind," Mr Bassanese added, "the RBA [will] wait for the more reliable quarterly CPI report later this month to confirm a decline in underlying inflation before cutting rates again in August." Dr Ellis, however, argued this approach could push the RBA into chronic policy error. "I think where there is a risk partly around the idea that maybe the RBA is seeking so much certainty in the data that they end up continuously behind the curve more generally," she warned. "So if it forms into a pattern of behaviour where the RBA doesn't have the courage of its analysis, isn't willing to make a forecast that is anything other than locked in based on backward-looking data, that would be a problem. "But it's not what we're seeing yet."
Economic Times
07-07-2025
- Business
- Economic Times
RBA to cut interest rates in July: What this means for Australian homeowners
Synopsis Australia's financial outlook anticipates a Reserve Bank of Australia (RBA) cash rate cut of 25 basis points on July 8, 2025, lowering the rate to 3.60%. Westpac, Commonwealth Bank, and NAB predict this cut due to lower inflation, with annualised inflation at 2.1%. For a $600,000 mortgage, homeowners could save $90 monthly, reducing mortgage stress for approximately 99,000 households. iStock RBA to cut interest rates in July Australia's financial landscape is set for a shake-up as the Reserve Bank of Australia (RBA) is widely expected to cut the official cash rate by 25 basis points at its meeting on July 8, 2025. This move would bring the cash rate down to 3.60%, offering immediate relief to mortgage holders. In a rare show of consensus, Westpac, Commonwealth Bank, and NAB have all publicly forecast a rate cut following the July RBA meeting. These predictions come on the back of softer-than-expected inflation data, with the latest Australian Bureau of Statistics figures showing annualised inflation at just 2.1%—comfortably within the RBA's 2–3% target band. Westpac: Chief Economist Luci Ellis highlighted that the May CPI indicator 'came in below even the low number that we expected,' prompting the bank to bring forward its rate cut forecast to July. Westpac now expects the cash rate to eventually fall to 2.85%, implying three further 25 basis point cuts after July. Commonwealth Bank: Economists expect two 25 basis point cuts this year—one in July and another in August—citing easing inflation and the RBA's dovish tone. They predict the cash rate will reach 3.35% by the end of the cutting cycle. NAB: NAB's economists also anticipate a July cut, followed by two more in August and November, bringing the rate to 3.10%. ANZ, however, is holding on to its forecast for a cut in August, not July, making it the outlier among the big four. ANZ has described the rate cut path as the 'path of least regret,' but is cautious about acting too soon, preferring to wait for further data before recommending a move. If the RBA moves to slash rates tomorrow, the cash rate will drop from 3.85% to 3.60%. For a typical Australian mortgage of $600,000, this could mean a reduction in repayments of about $90 per month—assuming banks pass on the full cut to borrowers. This would bring their total monthly savings to $273 since rate cuts began earlier this larger mortgages, such as $1 million, the monthly savings could reach $150. These cumulative savings are providing crucial breathing room for households, especially after a prolonged period of high rates. The impact of these cuts is more than just numbers: the share of mortgage holders considered 'At Risk' of mortgage stress is projected to fall from 26% to 24.7% after the July cut, equating to about 99,000 fewer households under financial pressure. Lower repayments will allow families to redirect funds to other essentials or build a financial buffer.
Time of India
07-07-2025
- Business
- Time of India
RBA to cut interest rates in July: What this means for Australian homeowners
Australia's financial outlook anticipates a Reserve Bank of Australia (RBA) cash rate cut of 25 basis points on July 8, 2025, lowering the rate to 3.60%. Westpac, Commonwealth Bank, and NAB predict this cut due to lower inflation, with annualised inflation at 2.1%. For a $600,000 mortgage, homeowners could save $90 monthly, reducing mortgage stress for approximately 99,000 households. Tired of too many ads? Remove Ads Westpac: Chief Economist Luci Ellis highlighted that the May CPI indicator 'came in below even the low number that we expected,' prompting the bank to bring forward its rate cut forecast to July. Westpac now expects the cash rate to eventually fall to 2.85%, implying three further 25 basis point cuts after July. Commonwealth Bank: Economists expect two 25 basis point cuts this year—one in July and another in August—citing easing inflation and the RBA's dovish tone. They predict the cash rate will reach 3.35% by the end of the cutting cycle. NAB: NAB's economists also anticipate a July cut, followed by two more in August and November, bringing the rate to 3.10%. What does a 25 basis point cut mean for homeowners? Tired of too many ads? Remove Ads Australia's financial landscape is set for a shake-up as the Reserve Bank of Australia (RBA) is widely expected to cut the official cash rate by 25 basis points at its meeting on July 8, 2025. This move would bring the cash rate down to 3.60%, offering immediate relief to mortgage a rare show of consensus, Westpac , Commonwealth Bank, and NAB have all publicly forecast a rate cut following the July RBA meeting. These predictions come on the back of softer-than-expected inflation data, with the latest Australian Bureau of Statistics figures showing annualised inflation at just 2.1%—comfortably within the RBA's 2–3% target however, is holding on to its forecast for a cut in August, not July, making it the outlier among the big four. ANZ has described the rate cut path as the 'path of least regret,' but is cautious about acting too soon, preferring to wait for further data before recommending a the RBA moves to slash rates tomorrow, the cash rate will drop from 3.85% to 3.60%. For a typical Australian mortgage of $600,000, this could mean a reduction in repayments of about $90 per month—assuming banks pass on the full cut to borrowers. This would bring their total monthly savings to $273 since rate cuts began earlier this larger mortgages, such as $1 million, the monthly savings could reach $150. These cumulative savings are providing crucial breathing room for households, especially after a prolonged period of high impact of these cuts is more than just numbers: the share of mortgage holders considered 'At Risk' of mortgage stress is projected to fall from 26% to 24.7% after the July cut, equating to about 99,000 fewer households under financial pressure. Lower repayments will allow families to redirect funds to other essentials or build a financial buffer.
