- Westpac forecasting four more rate cuts
One of Australia’s Big Four banks Westpac is now forecasting two extra interest rate cuts.
Westpac chief economist Luci Ellis, a former assistant governor of the Reserve Bank of Australia, is now forecasting four more rate cuts to the existing 3.85 per cent cash rate, starting in August.
This would take the RBA cash rate down to 2.85 per cent for the first time since December 2022, based on two extra interest rate cuts in early 2026.
Slower economic growth could even force the RBA to cut rates more aggressively.
‘The risks remain on the downside,’ Ms Ellis said.
‘It is possible that some of these cuts come a bit faster than the “cautious” path we currently have pencilled in.
‘This will depend on the evolving data flow, particularly for the labour market and inflation, as well as the RBA’s evolving beliefs about what constitutes full employment.’
Westpac is expecting the next cut to occur on August 12, following the release of June quarter inflation data, which would be the first of four more quarter of a percentage point rate cuts.
One of Australia’s Big Four banks Westpac is now forecasting two extra interest rate cuts
This would be followed by more relief on November 4, after the Australian Bureau of Statistics released September quarter inflation figures.
Westpac on Thursday updated its forecasts to have more cuts in February and May next year, but Ms Ellis said another cut in December was still a possibility.
‘We have retained our current expectations for the near-term path for the RBA cash rate: a 25 basis point cut in August – not July – and another in November,’ Ms Ellis said.
‘We have added two more 25 basis point 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”.’
A neutral RBA cash rate means the central bank is neither trying to slow the economy to tackle inflation or stimulate it to reduce the risk of a recession.
Unemployment is still low at 4.1 per cent but the Australia’s economy grew by just 1.3 per cent in the year to March, which was well below the long-term average of 3 per cent.
The Reserve Bank’s next meeting is on July 8, but that would be occurring three weeks before the release of June quarter inflation data.
