The major banks have diverged on how much further they believe the cash rate will rise, yet have begun to converge on when borrowers should expect cuts.
Westpac has held firm on its prediction of two more cash rate hikes this year, while Australia and New Zealand Banking Group has moved to spell out when it expects the first cuts to arrive.
In a new update, Westpac chief economist Luci Ellis said the bank had become more confident that the Reserve Bank of Australia (RBA) would lift the cash rate again at its August meeting, despite signs of an economic slowdown.
Ellis said that Westpac’s “conviction that the RBA will increase the cash rate in August has increased. Inflation and labour market data were broadly as we expected, and recent RBA communication has highlighted reasons to hike more – and in a more front-loaded way – in the face of supply shocks”.
The bank said the tone of the central bank’s recent communication was a key part of that assessment.
“We read the June minutes and recent speeches from the staff as messaging a preference around future decisions, as well as explaining the steep trajectory of the increases that have already occurred,” Ellis said.
September hike less certain, says Westpac
While Westpac is still pencilling in a second move before year end, Ellis said that the outlook for September had become more uncertain than earlier in the year.
“We still regard a follow‑up rate hike in September as the most likely outcome, but our conviction about its occurrence and timing has declined,” Ellis said.
“While a September hike remains our base case – just – there are credible scenarios where the second cash rate increase occurs later or not at all.”
That stance leaves Westpac as the only major still flagging further cash rate increases, with National Australia Bank (NAB), ANZ, and the Commonwealth Bank of Australia (CBA) all forecasting an extended hold at 4.35 per cent until at least mid‑2027.
Ellis also adjusted Westpac’s view on when the easing cycle would begin, bringing forward the first cuts by a year, but stressing that the RBA would remain cautious.
“We still think the RBA will be ‘once bitten, twice shy’ from the experience of 2025, when inflation popped back up again almost immediately after it started cutting rates. It will not be pre-emptive in its rate cuts,” she said.
“We expect the subsequent rate cuts to come sooner than previously forecast, starting August 2027 rather than early 2028 as previously.”
Yet Ellis said that any easing would be gradual and data‑dependent.
“A lower inflation trajectory in 2027 will be hard for it to ignore, especially if growth undershoots its (downbeat) assessment of supply capacity by as much as our GDP forecasts imply,” she said.
“This is a timing shift in our rates forecast, and we continue to expect a relatively tentative pace of rate cuts of 25bps per quarter.”
ANZ pins down its cut dates
ANZ, meanwhile, has focused its latest guidance on when it thinks rates will begin to fall.
Pointing to signs that the economy was already cooling under the weight of higher borrowing costs, ANZ said that it had “pencilled in two 25bp rate cuts in August and November 2027.”
[Related: RBA flags tightening risk if Middle East conflict endures]
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