Top economist issues interest rate warning under new Reserve Bank boss – as treasurer can’t rule out future hikes
Economist predicts more rate hikes say new RBA boss won’t change Treasurer also warns rate relief unlikely
A former colleague of the new Reserve Bank governor, Michel Bullock, has warned that the central bank will continue down the same path under his predecessor Philip Lowe.
Center for Independent Studies think tank economist Peter Tulip, who worked at the RBA from 2011 to 2020, predicted that further cash rate rises could be on the horizon despite the change in leadership.
‘I think (rates) will go up before they go down. I think another 50 to 100 basis points flipped,’ Mr Tulip told Sky News Australia on Sunday.
‘It will obviously depend on what the data says but if the data comes in as I expect then I think inflation will remain high and they will have to respond with higher interest rates.’
Under the governorship of Dr Lowe, whose Albanese government this week decided against a second seven-year term, the official cash rate was raised 12 times in the past 14 months from a record low of 0.1 per cent to 4.1 per cent. .
Treasurer Jim Chalmers, who has called for Dr Lowe not to be renewed as RBA boss, on Sunday also dampened expectations that the central bank could send rates in a different direction.
Despite refusing to give Dr Lowe an automatic second term, Dr Chalmers defended the RBA’s independence to carry out its vital role, which is to keep inflation under control.
The most recent measure of inflation came in at 5.6 per cent for the year to May, lower than analysts expected but still above the RBA’s target band of 2 to 3 per cent.
‘They will explain that decision and sometimes they have to defend that decision. It won’t change if the governor of the Reserve Bank changes,’ Mr Chalmers told ABC Insider on Sunday.
I’m not going to pre-empt the decisions that Michelle Bullock might recommend to the board. I think that’s really important.’
If Mr. Tulip’s predicted trajectory is correct, the cash rate will eventually rise to 5.1 percent, the highest level since 2008.
Michelle Bullock has taken over from Philip Lowe as Australia’s top banker but many expect her to chart a similar course on interest rates as she did.
Mr Tulip said Ms Bullock was armed with an independent report into the RBA’s practices and culture, which recommended a number of structural and procedural changes.
He believes that changes such as holding press conferences instead of speeches and official statements will lead to ‘more accountability and more transparency’ in the bank.
However, Mr Tulip said that as Ms Bullock had worked at the RBA for 14 years, it might be difficult for her to take a fresh look at how it was run.
‘It’s a bit surprising that they’ve hired someone who thrived under the old system,’ he said.
‘You wouldn’t think they were new sweepers.’
Treasurer Jim Chalmers insisted that the RBA’s decisions were made independently despite the decision not to extend Dr Lowe’s term.
Asked about Dr Lowe’s legacy, Mr Tulip believes history will be kind.
‘It’s a little mixed but the balance is very good,’ said Mr Tulip.
‘I think he will be remembered mainly for his response to the pandemic which was a very positive thing.
‘The bank has moved very aggressively and quickly and creatively.
‘Some of the decisions they made were not good, but given the circumstances in which they were made I think history will judge them very well.’