Westpac boss sees case for rate cuts after fall in inflation

Westpac boss Anthony Miller says the case for cutting interest rates has been strengthened by a fall in inflation, as he also pointed to positive economic trends, including a declining number of borrowers falling behind on their repayments.

After underlying inflation fell to a three-and-a-half-year low of 2.7 per cent on Wednesday, the boss of Australia’s second-largest retail bank said the decline should reinforce the case for a rate cut next month.

Westpac’s Anthony Miller said there appeared to be more evidence for cutting interest rates.Credit: Dominic Lorrimer

Miller acknowledged a cut was not a sure thing, after the Reserve Bank shocked markets when it held rates this month, but he said markets had priced in roughly a 90 per cent chance of a cut in August.

Reflecting the views of market economists, Miller highlighted the positive move in the underlying inflation rate – known as the “trimmed mean” – which excludes items with particularly big price changes.

“The trimmed mean is the one that I think we should all fixate on. The fact that it wasn’t up probably is another data point that reinforces it is open to the Reserve Bank to cut rates,” Miller said at a Trans-Tasman Business Circle event in Sydney.

At the same time, Miller still cautioned that the progress in dealing with inflationary challenges was “not overwhelming”, and he pointed out markets had been convinced there was a cut coming in July, only for the Reserve Bank to hold. He said the central bank remained focused on whether this was the right time to cut rates.

“It feels like there’s even more evidence now that they should [cut rates], but I can’t help but think that only four weeks ago, everyone was absolutely clear that there was a rate cut coming, and it didn’t,” he said.

“I think we’re lucky to have a Reserve Bank and a governor with that independence and that confidence to look after the country’s long-term interests.”

Speaking on the economy, Miller was relatively upbeat, saying the share of home loan customers who are 90 days behind on their repayments continued to fall. In business banking, he said stress levels were also improving and the bank had seen “very encouraging” demand for credit.

Miller, who took the reins as Westpac chief in December, is leading the country’s oldest bank as the big four face pressure on profit margins in the critical mortgage market from rivals such as Macquarie Group, as well as growing competition in business lending.

He said part of the bank’s growth strategy was to provide more banking services to its existing 10 million customers – of whom only a third view Westpac as their main financial institution. To this end, he said Westpac planned to hire more customer-facing bankers, while it is also looking to improve its app.

Miller also flagged some of Westpac’s proposals for the federal government’s economic roundtable next month – which included encouraging one million people to move to regional centres; increasing income tax thresholds in line with inflation; and making regulatory changes to encourage the building of more affordable homes.

Miller made the comments in a wide-ranging on-stage interview with Sean Aylmer, a co-host of the Fear & Greed podcast and a former editor-in-chief of the Sydney Morning Herald.

The discussion also touched on the media scrutiny of National Australia Bank chief executive Andrew Irvine, after The Australian Financial Review reported two weeks ago that major investors had raised concerns about Irvine’s management style and drinking at customer meetings and events with the bank’s directors.

Miller said on Wednesday that he thought the episode was unfair on the NAB boss, while adding that he expected to be in the spotlight as the chief executive of a major bank.

“I thought that was very unfair on Andrew, to be honest with you,” Miller said.

“Having said that, I always expected that there would be an element of limelight because you are representing this company, and I always thought that it would be quite an important responsibility in terms of how you conduct yourself and how you therefore needed to present yourself, and you would be constantly looked at and … examined as to what you were doing.”

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