Luci Ellis's 'thumb on the scale' critique of the RBA: how Australian borrowers can model repayments at 4.6% and above

This article is general information only. It does not take into account your personal objectives, financial situation or needs, and it is not personal financial advice; talk to a licensed finance professional before acting on a major lending decision.

TL;DR

Dr Luci Ellis, Westpac Group chief economist and formerly the RBA’s assistant governor (economic), says the RBA’s models rest on three assumptions that all lean the same way — a ‘thumb on the scale’ toward higher rates. The same board then lifted the cash rate by 0.25 of a percentage point to 4.6 per cent, the fourth rise of 2026 and a 15-year high. What that costs depends on your loan size: published estimates run from roughly $91 a month for each 0.25 per cent rise on a $600,000 loan with 25 years remaining, to $122 a month on an average $736,259 loan. Ellis’s critique is one view in a live debate, not a forecast, so plan for both outcomes instead of betting on one.

What Dr Luci Ellis actually said about the RBA’s models

Dr Luci Ellis is Westpac Group chief economist and previously served as the RBA’s assistant governor (economic), a role that effectively made her the central bank’s chief economist. Her argument is that the RBA’s internal models rely on three overly gloomy assumptions that put a ‘thumb on the scale’ tilting towards increased rates:

• worker productivity stays stuck at a 20-year low of 0.7 per cent
• workforce participation will flatten despite record highs
• unemployment must stay higher to curb prices

‘Together, the three RBA assumptions imply weaker growth in supply capacity and thus more inflationary pressure for any given level of demand,’ Dr Ellis said. She added that when every assumption looks individually plausible but all skew in one direction, ‘it starts to look like a pattern’, and while ‘the thumb on the scale is unlikely to be intentional’, it ‘does suggest the likely direction of future surprises in the medium term’.

Her broader point is about institutional incentives. She said it is understandable that being downbeat and running policy a little too tight means a faster return of inflation to target, which is ‘no bad thing for an inflation-targeting central bank’, but that ‘it matters, though, when those understandable assumptions are systematically one-sided’. She also warned that the RBA’s more downbeat set of assumptions ‘could be unwittingly contributing to a self-fulfilling talking-down of Australia’s prospects’.

Why a 0.7% versus 1.2% productivity assumption reaches your mortgage

Dr Ellis flagged the gap directly: Treasury assumes future productivity growth will average 1.2 per cent a year over the next 40 years, while the RBA assumes productivity growth will average 0.7 per cent a year. She argued that assuming 0.7 per cent ‘requires a repeat of past drags despite massive domestic and global investment’, and that the RBA’s model assumes modern technological advances like AI would have zero impact on worker output, when ‘the AI boom and associated resurgence of risk appetite make it hard to argue that we will see the same lack of new productivity-enhancing technologies’.

The transmission to borrowers is indirect but real. In Ellis’s framing, weaker assumed growth in supply capacity means more inflationary pressure at any given level of demand, and that supports tighter policy than a more optimistic assumption set would. The gap between 0.7 and 1.2 is not a rate forecast; it is a disagreement about the economy’s capacity that feeds into how much restraint the Board judges to be necessary. Read it as one informed view inside an ongoing debate, not as evidence that the path ahead is already settled.

What the RBA decided, and how the timing works

Ellis’s criticism landed as the board was weighing a 25 basis point lift to 4.6 per cent, a move that would have pushed interest rates to their highest level in over a decade. The board then lifted the cash rate by 0.25 of a percentage point to 4.6 per cent — the fourth rate hike of 2026 and the highest level since November 2011. Inflation stands at 3.5 per cent against the RBA’s 2 to 3 per cent target, and the RBA cited higher-than-predicted energy prices in its decision.

Three timing rules are worth knowing if you are watching the next meeting. The meeting outcome is announced at 2.30 pm on the second day of the Monetary Policy Board meeting, and the Governor holds a media conference at 3.30 pm. Minutes of the monetary policy meeting are published two weeks after each meeting, and the 2026 calendar released by the RBA includes the 28–29 September meeting. Any change in the cash rate target takes effect the following day. The cash rate itself is the interest rate on unsecured overnight loans between banks.

What a 0.25% rise is estimated to cost, by loan size

The published numbers differ mostly because the assumed loan sizes differ, not because anyone disputes the mechanics:

• Finder: a rate hike would add another $122 a month to an average $736,259 Australian home loan
• ABC, reporting analysis on the day: an extra $110 a month on the cost of repaying an average mortgage of $731,000
• Canstar: roughly $107 a month on a $700,000 loan on an average variable rate
• ABC’s rule of thumb: roughly $91 per month for each 0.25 per cent rise on a $600,000 variable-rate loan with 25 years remaining, with the four 2026 increases totalling 0.75 per cent adding approximately $360 per month on a $600,000 loan

Borrowing capacity moves the other way. Canstar estimates the borrowing capacity of someone on an average full-time wage of $108,650 would be reduced by more than $47,000, while a couple both on average wages would see a reduction of nearly $95,000.

On pass-through, Canstar’s database shows 18 lenders had already raised home loan rates this month. AMP chief economist Shane Oliver said the banks would likely announce a 0.25 per cent increase in their mortgage rates on the same day, the major banks typically pass rate rises along, and one lender described as the fifth-biggest bank lifted variable home loan reference rates by 0.25 per cent per annum, effective from 15 October. Westpac also doubled its national property forecast to a 7.3 per cent drop this year. All four big banks had expected the September hike but were reported as torn on what happens after that.

Expectations for what comes next are not outcomes: ANZ expected the RBA to increase rates a further fifth time in November; bond markets expected two more rate rises in coming months, with the first possibly on Melbourne Cup Day, 3 November 2026; and one economist said his base case was a further 25 basis points on Melbourne Cup Day, taking the cash rate to 4.85 per cent.

How to model your own repayments without predicting the RBA

The government’s Moneysmart mortgage calculator works out repayments for principal-and-interest loans, shows how you can repay a home loan sooner, and reflects an average interest rate drawn from the most recent RBA Housing Lending Rates publication. Moneysmart states that it is a model, not a prediction, that amounts and repayment periods are estimates only, that it does not take into account up-front costs such as loan establishment fees, and that you should consider advice from a licensed finance professional.

A practical sequence:

1. Enter your current loan balance, remaining term and current rate; note the repayment.
2. Add 0.25 to the rate and run it again; note the difference in dollars, not percentages.
3. Add a further 0.25 and run it once more, so you have seen a two-step scenario rather than a single headline move.
4. Compare the gap against your own monthly surplus, not against a published figure for a different loan size.

Two cautions. Individual lenders decide how much of an RBA rate hike to pass on, and any estimate does not factor in bank fees or charges, so check with your lender for an exact amount. And the calculator applies to principal-and-interest loans only; interest-only loans need a different calculation.

Offset balances, extra repayments and fixed rates

• Fixed rate: if you are on a fixed-rate home loan, you will not see changes, because those rates are locked in.
• Offset: Moneysmart explains how a mortgage offset account works, how it can reduce your home loan interest, and whether it is worth having. In plain terms, the cash held in offset changes the balance that interest is charged on rather than the rate written into your contract.
• Extra repayments: the same calculator shows how to repay a home loan sooner, and Moneysmart notes that small differences in your mortgage interest rate can make a big difference to the long-term cost of a home loan.
• Switching: Moneysmart publishes guidance on switching home loans and a mortgage switching calculator for working through the cost of moving.

What to do next

• Confirm the rate you are actually paying now, and the date on which your lender applies any change.
• Line up the comparison numbers you would need for refinancing: balance, remaining term, current rate, and any break or establishment costs.
• If repayments are already difficult, seek help early; the earlier you get help, the more options you will have.
• Where a broker comparison is useful, Arrivau is an Australian loan broker brand and an information and service entry point for Australian borrowers, covering Australian home loan and refinancing information.

Borrower questions

When does the RBA announce a rate decision, and when does a change apply?

The outcome is announced at 2.30 pm on the second day of the Monetary Policy Board meeting, with the Governor’s media conference at 3.30 pm and minutes published two weeks later. Any change in the cash rate target takes effect the following day. The 2026 calendar published by the RBA includes the 28–29 September meeting.

What is the cash rate now, and what would another 25 basis point rise mean?

The RBA lifted the cash rate by 0.25 of a percentage point to 4.6 per cent, the fourth rise of 2026 and the highest level since November 2011. A further 25 basis point rise was one economist’s stated base case for Melbourne Cup Day, which would take the cash rate to 4.85 per cent — an expectation, not a decision.

How much does a 25 basis point rise add to monthly repayments?

Published estimates differ by loan size: $122 a month on an average $736,259 loan (Finder), $110 a month on an average mortgage of $731,000 (ABC), roughly $107 a month on a $700,000 loan at an average variable rate (Canstar), and roughly $91 per month for each 0.25 per cent rise on a $600,000 loan with 25 years remaining (ABC). Pick the closest to your balance, then confirm with your lender.

How do I work out my own repayment change?

It covers principal-and-interest loans, is a model rather than a prediction, and excludes up-front costs. Because lenders decide how much of a rise to pass on, the output is an estimate until your lender confirms.

Which lenders have moved this month, and by how much?

Canstar’s database shows 18 lenders had already raised home loan rates this month. One lender described as the fifth-biggest bank lifted variable home loan reference rates by 0.25 per cent per annum, effective from 15 October, and AMP’s Shane Oliver said the banks would likely announce a 0.25 per cent increase on the same day as the decision.

What are the RBA’s assumptions, and how do they differ from Treasury’s?

Dr Ellis said Treasury assumes future productivity growth will average 1.2 per cent a year over the next 40 years while the RBA assumes 0.7 per cent a year. The three assumptions she identified are productivity stuck at a 20-year low of 0.7 per cent, participation flattening despite record highs, and unemployment needing to stay higher to curb prices.

What should borrowers do now?

Compare refinancing on your own numbers rather than on a predicted RBA path.

Sources and how they are dated

• realestate.com.au, ‘Thumb on the scale’: Ex-RBA insider exposes rate hike flaw, first published 29 September 2026
• Reserve Bank of Australia, 2026 Monetary Policy Board Meeting Dates, 10 February 2025 — used for announcement timing rules, the minutes schedule and the 2026 meeting calendar
• Reserve Bank of Australia, Cash Rate Target — used for how the cash rate is defined and when a change takes effect
• ABC News, What an interest rate hike means for your mortgage, savings account and the Australian dollar, 29 September 2026
• SBS News, RBA hikes rates to 15-year high amid rising energy costs, 29 September 2026