Westpac's chief economist, Luci Ellis, recently addressed the potential shift towards higher global interest rates due to factors such as looser fiscal policies, primarily in the United States, and the impact of the climate transition on the balance of saving and investment globally. She suggests that these changes will likely lead to an increase in interest rates to achieve equilibrium, affecting economies worldwide. Ellis predicts a timeframe that extends beyond a few years for the full transition to take place.
Regarding Australia's monetary policy, Ellis suggests that the Reserve Bank may maintain interest rates unchanged until November to allow inflation to decline sufficiently, aiming for a return to the target inflation range of 2-3%. She notes that the unexpected strength in inflation, primarily influenced by petrol prices, may delay the expected rate cuts as the Board aims to ensure a stable disinflation trajectory. Additionally, she highlights the differences between the Australian and US economies, cautioning against directly applying insights from one to the other due to distinct economic conditions and policy settings.