Australia's most powerful banker Reserve Bank Governor Michele Bullock has been trying to scare you - but Westpac's chief economist Luci Ellis claims it's all bluff

A former Reserve Bank insider has hinted her former employer has been waging a scare campaign on inflation.

Reserve Bank Governor Michele Bullock last month confirmed her board considered an interest rate hike but not a rate cut as it left the cash rate on hold at a 12-year high of 4.35 per cent.

The word 'inflation' was also mentioned 24 times in the accompanying statement and 60 per cent of consumers surveyed this month by Westpac are expecting another rate rise.

Rate rise fears have been heightened after new data showed inflation in the year to May edging up to 4 per cent, putting it further above the RBA's 2 to 3 per cent target.  

But Westpac chief economist Luci Ellis, a former RBA assistant governor who worked at the Reserve Bank for three decades, said the fact the European Central Bank last month cut rates meant Australia was more likely to do the same thing.

'The Reserve Bank board will also be mindful that other central banks have already started cutting rates or are actively contemplating doing so soon,' she said in a video on Friday.

'Now they don't have to move in lockstep with their peers overseas but the experience of other central banks has been a guide for how things may play out in Australia.

'We saw a common global inflation shock and so they will take the lessons of elsewhere in terms of thinking about how quickly inflation might come down.'

Dr Ellis, who could have become a Reserve Bank governor if she had stayed at the RBA, is expecting rates to remain on hold at the next meeting in August. 

'Now, one should never say never and if inflation does end up being stronger than we expect, it is possible that the Reserve Bank board may feel that they have to act but that is not our core view,' she said. 

June quarter inflation data, due for release on July 31, could make a rate cut in 2024 more likely if the consumer price index is lower than the March quarter's 3.6 per cent level. 

'Inflation is too high but it is coming down. If inflation turns out roughly as we expect, in the June quarter, then that means that it is declining at broadly the pace that the Reserve Bank is hoping for,' Dr Ellis said.

'An outcome like that would support the Reserve Bank keeping rates on hold in the short term before ultimately starting to cut rates as inflation starts to approach their 2 to 3 per cent target range.

'You can never predict the future perfectly but that is the outcome that we think is more likely.' 

Westpac and the Commonwealth Bank are both expecting a November rate cut, which would be the first easing since November 2020 during Covid. 

But NAB has adjusted its forecasts to have the first rate cut occurring in May, instead of November, delaying relief from the more aggressive hikes since the late 1980s.

ANZ last month updated its forecasts to have a February rate cut.

Ms Bullock in June confirmed a rate rise was debated but not a rate cut.

'Yes, the board did discuss the case for increasing interest rates at this meeting,' she told reporters.

'No, the case for a cut was not considered,' she said.

The Westpac-Melbourne Institute consumer sentiment survey for July showed 60 per cent of the 1,200 respondents surveyed were expecting another rate rise - suggesting the RBA's inflation warnings are having some effect.

Ms Bullock didn't mention the word 'inflation' once at this week's Pacific Banking Forum dinner in Brisbane but she had previously talked about managing the inflationary expectations of consumers so they spent less.