Westpac’s chief economist Luci Ellis’ sliding doors moment

“It taught me early in my career that big events often have really unexpected and long-lasting impacts you can’t necessarily know upfront. Who would know my entire career, life course would be determined by that?”

Ellis is conveying the story at a small corner table in Ragazzi, an intimate Italian diner on Angel Place in Sydney’s CBD well patronised by the white-collar crowd drawn from nearby offices.

We are quickly furnished with the menu by efficient waitstaff; it includes antipasto, the handmade pasta for which the restaurant is best known, dolce, gelati and formaggi.

Ellis opts for a crab Lumache pasta, a small, ridged, shell-shaped package of carbohydrate goodness with a pinched end perfect for capturing sauce. I opt for a prawn Mafaldine pasta, a long ribbon shaped affair.

With a decent chunk of the workday still ahead, the adequate wine list is shunned in favour of sparkling water.

Another once-in-a-generation shift

Ellis previously declined to have Lunch with the AFR – or rather the RBA’s media team had politely declined on her behalf – but a recent professional change made the tête-à-tête more acceptable.

In October last year, the 54-year-old left the RBA after almost 32 years, including six as assistant governor economics (formerly and still informally known as the bank’s chief economist) and another eight leading its financial stability unit.

“It’s not the kind of area where it’s OK to stay in the one role for 10, 15, 20 years,” she says.

It was also clear that after a turbulent few years in which the bank copped legitimate criticism over its economic forecasts and communication, and less legitimate, albeit more populist, criticism for embarking on the fastest interest rate hiking cycle in a generation, change was in the works.

Despite an expressed wish to stay on, former governor Philip Lowe’s seven-year term was not renewed by Treasurer Jim Chalmers when it expired in September last year and instead his deputy Michele Bullock got the top job.

An independent review of the bank also found faults and made a swathe of recommendations to reform the institution.

“It was just obvious whomever was governor after September was going to need to be seen to make change,” Ellis says.

Fortuitously, another once-in-a-generation shift would open the door to her next career opportunity. Bill Evans, Westpac’s legendary chief economist for as long as Ellis had been at the RBA, announced his retirement.

“I jumped in and grabbed it with both hands,” she says. It represented a change of sides for Ellis, professionally and geographically.

Professionally, she was swapping public service for the private sector, where the customer is king and profit is key. Geographically, it was a shift from one side of Sydney’s CBD to the other; from the RBA’s headquarters at 65 Martin Place to Westpac’s 33-floor headquarters on Kent Street.

Ragazzi is about halfway between.

Out and proud

The shift to Westpac marks the first time a chief economist role at one of the big four banks has been held by a woman. “Economics is a male dominated discipline,” Ellis says, a situation that has worsened over recent decades.

In the early 1990s, economics was the third-most-popular high school subject in NSW, almost equally split between boys and girls. The ratio is now 70:30. At university, male economic students outnumber women two to one.

Ellis has been openly gay since her university days and says while she has not felt discriminated against for her sexuality, the same could not be said of her gender.

“All women will be able to tell you things about presumptions and [people saying] �?Oh, we can’t find any women candidates’ or �?There are no women to present at this conference, sorry, we tried so hard,’” she says. “There is a lot of unconscious, subconscious bias in the profession and more broadly.”

Ellis and her wife, Sian, had a ceremony at HMAS Penguin on Sydney’s lower-north shore in 2011, and married in February 2018 shortly after same-sex marriage was legalised. They have two children, two lhasa apso dogs (which are like cats) and two siamese cats (which are more like dogs).

The ceremony at one of the Royal Australian Navy’s most picturesque bases was a big affair and made possible because Sian was an active member of the Australian Defence Force; she served in Kuwait, Iraq and Afghanistan. The official marriage was smaller and for many of the attendees, a surprise.

While being gay is far more accepted than it ever was in the past, there are still aspects of society where young people are struggling and Ellis says it is important to be open and proud if possible.

“There are parts of our society that for cultural or religious, or just family reasons, are not accepting, and so like in the 1980s coming out was seen as something you should do if it was safe to do so,” she says.

Don’t squash the fruit

After our plates are taken away, attempts to purchase a green tea and a flat white are rebuffed. It seems apart from the wine list the only other beverage on offer is espresso – we order two and move on to economics.

No longer constrained to monetary policy and the academic style guide of the RBA, the move to Westpac has allowed Ellis to broaden her writing on economic topics while also making it more accessible for readers who are time poor and Greek alphabet illiterate. Her Friday notes, each about 800 words long, have become must reads and are widely quoted in the media.

They come with catchy titles such as: �?In a world gone bananas, don’t squash the other fruit’ (about supply and demand), and �?The Laptop Warrior, the Barista and the Governor’ (about productivity).

“One of the things that really inspires me about the shift has been the ability to join the dots,” she says. “If you’re a central banker, the first answer you think of will be monetary policy. If you’re the government or the Treasury, the first answer you think of will be fiscal policy.” Ellis bridges the two.

Westpac’s house view is the RBA’s official interest rate of 4.35 per cent will begin to ease from November this year, a full year before financial market pricing for December 2025.

It’s not the first time Ellis is at odds with financial markets. During her time as chief economist, Lowe criticised investors for betting interest rates would rise in 2022, almost two years ahead of official guidance.

The RBA was proven wrong on interest rates on the way up, but Ellis feels on the way down that “inflation is unwinding broadly as you’d expect”.

Underpinning this confidence is the RBA’s decision to increase the cash rate in November last year as “insurance”. That decision came ahead of a run of softer than expected indicators that promoted questions about whether the increase was a mistake.

But Ellis says when the indicators shifted again in May, it meant there was less pressure on the bank to once more raise rates.

“There are going to be bumps along the way, but you don’t want to overreact to bumps and treat them as a change,” she says.

After the waiter makes plain it’s time to shove off, we wander up the road to the Ash Street Cellar for the flat white and green tea sought earlier. The conversation skips briskly across different economic topics.

Productivity and profits

On productivity – currently being closely watched by the RBA for an uptick needed to sustain current pay levels and ward off further interest rate rises – Ellis says the local debate is very different to the rest of the world.

“You have this maintained belief that you don’t see anywhere else that productivity is the government’s responsibility. When I explain this to people overseas they ask, �?What do you mean?’ … That’s not government’s job, it is an organisation’s jobs and the leadership of those organisations.”

Despite woeful progress on productivity over the past two years – it is currently bouncing around 2016–2019 levels – Ellis is upbeat about the outlook.

“In 2020 and 2021, all everyone was thinking about was surviving COVID. In 2022 and 2023, the thinking was all about how do we make hybrid work and get enough workers,” she says – in essence, management did not have the bandwidth to think about how to boost productivity.

But with input costs still edging higher, the economy slowing markedly and households still getting squeezed by the cost of living, managers are finding they can’t just raise their prices and are having to think about boosting output within existing labour resources to maintain overall profit margins.

On the question of inflation being driven by local corporate profits, Ellis has always been dismissive of the idea.

When left-wing advocacy group The Australia Institute released its claim 69 per cent of inflation beyond the RBA’s target band was driven by excess corporate profits, Ellis – who was then at the RBA – even reached out to some media that uncritically parroted the claims to correct the record.

“It may be some companies are expanding their margins, but oftentimes they’re doing [it] at the expense of suppliers whose margins are contracting, and so the net effect on consumer prices is neutral,” Ellis says.

There was some RBA microdata research published at the time to support her position.

“The fact the non-mining profit share didn’t move during this period, I think is compelling evidence [high inflation] was not because of the naughty supermarkets,” she says.