Login
ISCOVER
The big four bank has revised its cash rate expectations, forecasting two cuts this year and a further two in early 2026.
Westpac has changed its interest rate expectations and is now predicting more cash rate reductions by the central bank in this rate-easing cycle.
According to Westpac’s revised forecasts, there will be rate cuts in August and November this year, before a further two cuts are made in early 2026.
The major still foresees the Reserve Bank of Australia (RBA) to hold rates in July, but make 25-bp cuts in August and November, but has changed its forecast for next year due to what it described as a “lower inflation outlook”.
Explaining the change to its forecast, Westpac chief economist Luci Ellis said: “We have added two more 25bp cuts in early 2026 (February and May), though they could be earlier (December and February or February and March) if inflation and the labour market turn out weaker late in 2025 than we currently expect.
“That would mean RBA cash rate will bottom out at 2.85 per cent, from a peak of 4.35 per cent, and 3.85 per cent currently. We regard the cash rate at 2.85 per cent as being at the lower end of the ‘neutral range’.”
At the RBA’s May/June cash rate decision last month, the board announced that it would cut rates by 25 bps to 3.85 per cent, dropping rates below 4 per cent for the first time in two years.
In its minutes for the May/June meeting, the central bank revealed it was favouring a cautious approach to interest rate policy amid heightened global uncertainty and market volatility.
Reflecting on the RBA’s outlook, Ellis said: “The board described itself [at its latest (May) meeting] as having a preference to move cautiously and predictably. This is code for not wanting to do back-to-back cuts.
“It also made it clear in the minutes that this was about reducing restrictiveness, not moving quickly back to neutral in the style of the Federal Reserve last year. And the board is not in the habit of changing policy just because the market is pricing it in.”
What are the other majors forecasting?
Australia and New Zealand Banking Group (ANZ) is forecasting two more 25-bp cuts in August and February 2026, to take the cash rate to 3.35 per cent at the end of this easing cycle.
ANZ economist Sophia Angala and senior economist Adelaide Timbrell said that they expected the progress in US trade negotiations and solid domestic economic data to support an RBA hold in July.
Commenting on the central bank’s decision-making process, the economists said: “While the RBA’s post-meeting commentary appeared bias towards more easing, including considering a 50bp rate cut, the RBA minutes highlighted that the case for the 25bp rate cut versus a 50bp was not a particularly close call.
“The minutes also suggested the RBA is close to its neutral cash rate (the rate that neither stimulates or reduces economic activity), but we don’t think the RBA has lowered its estimates of neutral.”
National Australia Bank (NAB) economists have said that positive economic indicators in Australia, coupled with a sharp rise in global uncertainty caused by trade tariffs, could lead the central bank to speed up the pace of interest rate cuts.
The major is forecasting the central bank to cut rates by 25bps in July and August and then again in November, taking the cash rate to a broadly neutral stance of 3.1 per cent.
The Commonwealth Bank of Australia (CBA) is predicting a 25-bp drop in August and November. That would take the end-of-year cash rate to 3.35 per cent.
However, when releasing the CBA Housing Spending Insights index for May 2025 last week, the bank's economics team added: "The progression of consumer spending data will be a key focus for the RBA ahead of the 8 July rate decision. The balance of probabilities continues to shift towards a July rate cut (our base case remains August) but will depend on upcoming data flow, including the May monthly CPI [released on 25 June] and labour market data [released 26 June]."
The RBA Monetary Policy Board is next scheduled to meet on 7–8 July.
[Related: RBA signals cautious stance in face of global uncertainty]
JOIN THE DISCUSSION