‘Get on with it’: Leading economist defies consensus and demands RBA hikes interest rates at June meeting

One leading voice has defied the consensus on interest rates and demanded the Reserve Bank of Australia “get on with it” and hike the cash rate.

Money markets say there is a nine per cent chance the RBA will lift rates in June after already hiking three times since the beginning of the year.

The cash rate is not expected to rise until September.

EQ Economics’ managing director Warren Hogan said the RBA should act early to help stamp out high inflation – which sits at 4.6 per cent.

“Unless something happens that really forces the economy to turn down – like we’re seeing softness in the housing market, we’re seeing weak sentiment surveys, but the activity side of the economy seems to be holding up,” Mr Hogan told Business Now.

“So in the absence of a downturn in the economy, I think they’re going to have to raise rates again and probably a few times. So why not just get on with it?”

Both headline inflation and trimmed mean inflation – the middle 70 per cent of price changes – sit outside the RBA’s 2-3 per cent target band.

His call comes ahead of upcoming inflation data from the Australian Bureau of Statistics on Wednesday.

Inflation is expected to fall to 4.4 per cent in the year to April after Labor halved the fuel excise to help alleviate price pressures during the oil crisis.

However, Mr Hogan argued the upcoming inflation figure could push the RBA to do the unexpected.

“This number on Wednesday could change this all very quickly because the reality is we are nowhere near getting inflation under control,” he said.

“It could be quite a problem for us if these numbers reveal what we suspect and that there is this big inflation impulse running through the economy.”

The RBA warned last week that high budget deficits and massive investments into green energy and artificial intelligence have likely influenced rising interest rates.

In the latest meeting of the RBA where the board decided to raise interest rates for a third consecutive time, members discussed how government expenditure may have contributed to rising rates.

The RBA board said the neutral cash rate had risen over the past year amid higher inflation, rising budget deficits and investments in AI and green energy.

“Members noted that these estimates of neutral had generally risen over the preceding year, possibly reflecting some combination of how the models interpret the rise in domestic inflation over prior months and global trends associated with very strong AI and green energy investment and rising budget deficits,” the minutes from the RBA’s May meeting read.

The neutral cash rate is the point where interest rates are not too restrictive but do not allow inflation to surge.

Deficits and investment in green energy and AI have contributed towards the neutral rate rising above the actual cash rate, which was lifted to 4.35 per cent at the May meeting.

“Whatever the cause, members noted that model-based measures implied that any given cash rate was, at the time of the meeting, somewhat less restrictive than a year or so earlier,” the minutes read.