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The chances of another interest rate hike from the Reserve Rank have risen sharply following the decision by the US Federal Reserve to defy President Donald Trump and raise interest rates from 3.75 to 4 per cent.
Westpac chief economist and former RBA assistant governor Luci Ellis says there would have been a sigh of relief within the Reserve Bank at the news, because US Fed chair Kevin Warsh was handpicked by Donald Trump to slash rates.
She says if the Fed were to cut rates, "we would have had more market turmoil and that would have caused more of a bond market issue globally."
The Westpac chief economist says the RBA will now focus on inflation, particularly domestic inflation.
"In the end, it comes down to domestic inflation pressures and that domestic demand dynamic that we're seeing. The household sector has got a bit more income than we thought... We do expect inflation to come down from here, but the RBA will be nervous about that because inflation did pop back out of the target range again last year and is higher than they would like." She said.
She says the next rate hike by the Reserve Bank will be either September or November, with November being "tactically" the better choice, but internal members of the board are
trying to signal to the market that they want to raise rates.
"So, September is a genuine possibility as well," she says.
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