- Westpac now predicting July rate cut
Westpac has become the latest of Australia’s Big Four banks to predict a July rate cut.
Luci Ellis, Westpac’s chief economist who was previously an assistant governor of the Reserve Bank, said relief on July 8 was now likely with inflation now at just 2.1 per cent.
‘We now expect the next RBA rate cut to be in July rather than August, but this is not the shoo-in the market seems to think it is,’ she said.
Westpac has joined the Commonwealth Bank and NAB in predicting relief next month, which would see the RBA cash rate fall to 3.6 per cent for the first time since May 2023 with a quarter of a percentage point easing.
That means three of Australia’s Big Four banks are predicting a July rate cut with only ANZ still forecasting an August cut as the next move.
New data released on Wednesday showed headline inflation in May moderating to just 2.1 per cent, putting it on the low side of the Reserve Bank’s two to three per cent target.
Even with big price falls stripped away, underlying inflation in the monthly Australian Bureau of Statistics data was still low at 2.4 per cent and under the RBA’s target midpoint.
The Reserve Bank traditionally waits until the release of more comprehensive quarterly inflation data to act and economists had expected it to wait until August 12, following the late July release of June quarter consumer price index figures.
Westpac has become the latest of Australia’s Big Four banks to predict a July rate cut
But Ms Ellis said a sluggish economy justified an earlier cut in July, with inflation no longer the chief worry.
‘Moving more quickly than the “cautious and predictable” path flagged in May implies that the RBA’s forecasts need to shift,’ she said.
The RBA’s May statement on monetary policy implied a tight labour market risk feeding inflation, with unemployment low at 4.1 per cent.
With inflation falling, Ms Ellis said the RBA would cut rates by 25 basis points in July but issue a statement suggesting it was still concerned about wages feeding inflation.
‘Given the lingering uncertainties and the RBA’s concerns about a tight labour market, expect its post-meeting language to be non-committal, even a little grudging about the decision to cut,’ she said.
Westpac is now expecting the RBA cash rate to fall from 3.85 per cent now to 2.85 per cent by early 2026 – for the first time since December 2022 – which would imply four more rate cuts.
It is predicting relief in July and August followed by February and May 2026, but Ms Ellis said rates could be cut sooner in late 2025.
‘We still think there are three further cuts after the next one (terminal rate 2.85 per cent), but the timing will depend on the RBA’s post-meeting tone,’ she said.
Luci Ellis, Westpac’s chief economist who was previously an assistant governor of the Reserve Bank, said relief on July 8 was now likely with inflation now at just 2.1 per cent
‘The risks are that they come sooner than February and May next year.’
The futures market is expecting the RBA to cut rates to 3.1 per cent by the end of 2025, which would imply three cuts by Christmas.
‘In short, only because the RBA sees itself on a path of cutting rates soon will it decide to validate market pricing and get on with the next cut at its July meeting,’ Ms Ellis said.
‘But this is not the timing it previously thought it would be on.’
A 25 basis point rate cut on July 8 would shave $106 off monthly repayments on an average, $660,000 mortgage.
This would also see big bank variable mortgage rates fall under six per cent, as typical monthly repayments edged below $4,000.
