Westpac, one of Australia's "Big Four" banks, has revised its forecast for the Reserve Bank of Australia (RBA) cash rate, now expecting a 25-basis-point hike to 4.6% in November. This move aligns Westpac with other major Australian banks, including ANZ, Commonwealth Bank of Australia (CBA), and NAB, which had already adjusted their predictions after a hotter-than-expected July inflation report. Previously, Westpac was the sole holdout, maintaining a dovish stance that the RBA would keep rates on hold for the remainder of 2026.
The shift in Westpac's outlook comes after the July Consumer Price Index (CPI) showed headline inflation easing to 3.5% annually, down from 3.8% in June, but the RBA's preferred trimmed mean inflation measure remained at 3.6% for a second consecutive month, exceeding forecasts and staying above the central bank's 2-3% target band. This persistent inflation, particularly in market services and certain durable goods and household services, has led Westpac to conclude that the risk of an RBA rate hike has significantly increased.
Westpac's Chief Economist, Luci Ellis, had earlier stated that one monthly inflation print was not enough to "lock in a hike," but acknowledged the increased risk. The bank had suggested that if a hike were to occur, it would be an "insurance hike" reflecting unease about the slow pace of inflation returning to target. The "awkward timing" of the September RBA meeting, with the August CPI release scheduled the following day, made a November hike more plausible, requiring confirmation from intervening data.
Other banks had reacted more swiftly to the July inflation data. ANZ economists Adam Boyton and Jack Chambers were among the first to call for a 25-basis-point hike in November. CBA's Belinda Allen also revised her bank's forecast for a 25-basis-point hike in November, citing broad-based upside surprises in the CPI, capacity constraints, ongoing Middle East supply shock impacts, and a Fair Work Commission award wage decision. Deutsche Bank's Australia chief economist Phil O'Donaghoe even suggested a hike as early as September, calling the July trimmed mean result "intolerably high." Market futures quickly reflected these changes, pricing in a roughly 78% chance of a hike by November.
While Westpac previously noted that new dwelling costs and rents were broadly in line with expectations, and that a cooling jobs market might allow the RBA to hold its nerve, the cumulative evidence from recent data, including the resilience of consumer spending and the continued elevation of market services inflation, appears to have driven the change in their stance. This consensus among the major banks underscores the growing expectation of further monetary tightening by the RBA later this year.
