Westpac hires RBA’s Luci Ellis, keeps Bill Evans as senior adviser

Outgoing Westpac chief economist Bill Evans expects the Reserve Bank to deliver two more interest rate hikes to get inflation back to target levels within a reasonable timeframe.

RBA assistant governor Luci Ellis is heading to Westpac. Picture: NCA NewsWire / Monique Harmer

Outgoing Westpac chief economist Bill Evans expects the Reserve Bank to deliver two more interest rate hikes – most likely in August and September – to get inflation back to target levels within a reasonable timeframe, and thinks the economy will avoid a recession despite slow growth.

Evans will hand over the reins to Luci Ellis – the RBA’s top economics official – in October, before returning as Westpac’s senior economic adviser next January.

The appointments are a coup for Westpac, attracting one of the nation’s most senior public-sector economists while retaining strategic economic input from the man who has “defined the role of chief economist” for over three decades in this country.

Under Evans’ leadership, Westpac has for many years ranked No.1 for “the most useful domestic economic analysis” in Peter Lee Associates surveys of corporates and financial institutions.

Evans now believes the recent change in the RBA’s thinking – from wanting to keep the economy on an “even keel” while lowering inflation, to worrying about the risk of inflation becoming embedded in the system, and having to accept that economic growth and employment needs to pay a price for ensuring that inflation pressures are contained – means “they have to go a couple more times”.

“We originally thought that the peak in the cash rate would be in May, at 3.85 per cent, but I think with this big change in approach, it’s going to have to go higher,” he says.

The cash rate is now at 4.1 per cent and is widely expected to reach 4.6 per cent by May.

Some economists expect a move to 4.85 per cent within months.

The news comes amid heightened uncertainty over the future of RBA leadership.

RBA governor Philip Lowe, left, with Westpac chief economist Bill Evans. Picture: NCA NewsWire / Gary Ramage

Federal Treasurer Jim Chalmers is widely expected to announce this week that RBA governor Philip Lowe will be replaced when his current term expires on September 17. Ellis is the second senior official to depart the central bank in just over a year.

Former deputy governor Guy Debelle left for Fortescue Metals Group in March 2022, putting a hole in the RBA’s succession planning.

Australian shares and government bonds were pummelled again on Monday. The S&P/ASX 200 index hit a three-month low and the 10-year bond yield reached a decade high.

In coming months, the central bank is due to implement the recommendations of the RBA Review, including the appointment of a separate monetary policy board, a shift to six-weekly board meetings, and a more rigorous focus on achieving the midpoint of its 2-3 per cent target band for inflation.

Last September, Evans told The Australian in an interview that the RBA needed to “strengthen the rhetoric” on inflation, in order to head off a potential price-wage spiral, as demand was running well above supply after the pandemic.

He called on the RBA to hike by 50 basis points last October after a strong inflation report.

Instead the RBA downshifted to 25 basis point rate hikes.

“That (50bps) would have been the right policy, in retrospect,” Mr Evans said.

“The taper was a bit early and they were stuck with chasing their tail a bit.”

Since then the RBA has started hiking rates twice a quarter.

But even after delivering an aggressive four percentage points of interest rates since May 2022, the RBA still says some further tightening of monetary policy may be needed to ensure that inflation returns to target in a reasonable timeframe.

Last September Mr Evans expected economic growth of 1 per cent in 2023 and 1.5 per cent in 2024, but he now sees just 0.6 per cent in 2023 and 1 per cent in 2024 due to the higher rates.

While not predicting two consecutive quarters of negative economic growth, it may feel like a recession, with a negative quarter expected to start 2024, leading to rate cuts from May.

Westpac chief executive Peter King said Ellis was a “highly qualified and respected economist who will build on Bill’s legacy of providing quality economic forecasts for Westpac customers”.

“We are delighted to welcome Luci to Australia’s oldest bank,” he said.

Ellis has held her current role as assistant governor (economic) at the RBA since 2016.

Before that, she was head of the RBA’s Financial Stability Department for eight years.

Ellis has also served as a deputy head of the economic analysis department and spent almost two years on secondment at the Bank for International Settlements.

“I am grateful for the opportunities I have had over my 32 years of service to the Reserve Bank, but it was time for a new challenge,” she says.

“I’m excited about the new role and truly grateful to Westpac for putting their trust in me as Bill’s successor.”

Evans is widely regarded as one of the best market economists when it comes to forecasting the RBA’s interest rate moves. King said Evans, 72, “defined the role as chief economist” in Australia.

“Bill joined Westpac in the midst of the 1991 recession and since then has been a trusted voice in Australia through every economic cycle,” King said.

Evans previously headed the RBA’s research department.

Before that, he was treasurer of the Commonwealth Bank.

Originally published as Westpac hires RBA’s Luci Ellis, keeps Bill Evans as senior adviser