Westpac Ditches Rate Hike Call Amid Softer Inflation

Westpac has revised its interest rate forecast for Australia, citing softer-than-expected inflation data. The bank now expects the Reserve Bank of Australia (RBA) to hold the cash rate in August, rather than hiking it as previously anticipated.

The RBA's messaging remains hawkish, but Westpac's economists argue that a downside surprise in Q2 inflation removes the near-term case for tighter policy.

Chief Economist Luci Ellis noted that market services and housing-related inflation components came in below expectations, undermining the case for another rate increase. She also pointed out that the labour market is weaker than assumed by the RBA, with higher unemployment and participation rates likely to weigh against further hikes.

While Westpac still flags a risk of a November rate rise if inflation picks up again in the third quarter, this scenario is now considered a downside rather than the base case. The bank continues to expect the RBA's first easing move to come around August 2027.