Top economist issues interest rates warning under new Reserve Bank boss – as Treasurer can’t rule out future hikes
- Economist predicts more rate rises
- Says new RBA boss won’t change that
- Treasurer also warns rate relief unlikely
A former colleague of new Reserve Bank governor Michele Bullock has warned the central bank is set to continue on the same course as it did under her predecessor Philip Lowe.
Centre for Independent Studies think tank economist Peter Tulip, who worked at the RBA from 2011 to 2020, predicts that more cash rate hikes could be on the horizon despite the change of leadership.
‘I think they’re (rates) going to go up before they go down. I think there’s another 50-to-100 basis points on the upside,’ Mr Tulip told Sky News Australia on Sunday.
‘It’s clearly going to depend on what the data say but if the data come in the way I’m expecting then I think inflation will stay high and they’ll need to respond to that with higher interest rates.’
Under the governorship of Dr Lowe, who the Albanese government decided not to give a second seven-year term to this week, the official cash rate was hiked 12 times in the past 14 months from the record low of 0.1 per cent to 4.1 per cent.
Treasurer Jim Chalmers, who made the call not to renew Dr Lowe as RBA boss, also on Sunday dampened expectations that the central bank might send rates in a different direction.
Despite refusing to give Dr Lowe an automatic second term, Dr Chalmers defended the independence of the RBA in performing their important role, which is to keep inflation in check.
The most recent measure of inflation came in at 5.6 per cent for the year to May, which was lower than analysts expected but still well above the RBA’s target band of 2 to 3 per cent.
‘They will explain that decision and sometimes they will have to defend that decision. That won’t change when the Governor of the Reserve Bank changes,’ Mr Chalmers told ABC Insiders on Sunday.
‘I’m not going to pre-empt the decisions that Michele Bullock might recommend to the board. I think that’s really important.’
If Mr Tulip’s forecasted trajectory is accurate the cash rate will eventually rise to 5.1 per cent, the highest level since 2008.
Michele Bullock has taken over from Philip Lowe as Australia’s top banker but many expect she will chart a similar course on interest rates as he 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 believed changes such as having press conferences rather than speeches and official statements would lead to the bank having ‘more accountability and more transparency’.
However, Mr Tulip said as Ms Bullock has worked at the RBA for 14-years, it might be difficult for her to bring a fresh eye to how it operated.
‘It’s a bit surprising they have appointed someone who has thrived under the old system,’ he said.
‘You wouldn’t think they are the person to put through a new broom.’
Treasurer Jim Chalmers insists the RBA’s decisions are made independently despite deciding not to extend Dr Lowe’s tenure
Asked about Dr Lowe’s legacy Mr Tulip believed history would be kind.
‘It’s slightly mixed but on balance very good,’ Mr Tulip said.
‘I think he will mainly be remembered for the response to the pandemic which was a very positive thing.
‘The bank moved very aggressively and quickly and creatively.
‘In hindsight some of the decisions they made were not good but considering the circumstances that they were made I think history will judge that very favourably.’
