Announcement follows multiple increases to fixed-rate mortgages by Big Four bank
Westpac was the last bank to expect further interest rate cuts from the Reserve Bank of Australia (RBA) in 2026… until today.
Updating the market on Wednesday, Westpac chief economist Luci Ellis said she sees inflation heading back to target in the year ahead, but “this will not be enough to shift the RBA’s more hawkish mindset”, adding: “While the RBA recognised that some of the recent inflation surprise reflected temporary factors, it has clearly taken signal from it.”
As such, Westpac joins its Big Four compatriots in cancelling any expectations of monetary easing in the year ahead.
For those keeping track of the mortgage market, the reversal shouldn’t come as a surprise.
Westpac recently increased some of its fixed home loan rates by up to 0.35 percentage points, marking the second time in just over a month that it has raised fixed rates. Westpac’s lowest fixed home loan rate now sits at 5.49%.
Pause but no hikes
Westpac's updated forecast remains less conservative than Commonwealth Bank's, whose economists reckon at least one rate hike – potentially more – is on the agenda for 2026.
“The economy has picked up more momentum than expected, and that strength is keeping inflation from easing,” CBA head of Australian economics Belinda Allen said yesterday.
She believes “a small rate increase in February” will help guide inflation back to the RBA preferred target range of 2-3%.
Ellis doesn’t quite share this opinion. She said: “Following the inflation surprises, markets immediately rushed to the other side of the boat to price in rate hikes.
“The probability of a hike is not zero, and the RBA was right to warn the community of the possibility. In our view, however, a near-term hike is far from the base case.
“Labour market data has been less bullish than the inflation data, and the Monetary Policy Board will need to balance this with its fears about inflation. Further upside surprises on inflation in the rest of the December quarter or early 2026 would tip the balance but would not be warranted if our own inflation forecasts are borne out.”
Looking further down the line, Ellis believes rates cuts could be feasible in early 2027 “If our broader set of forecasts are borne out”.
