Westpac Economics has updated its forecasts for the Reserve Bank of Australia (RBA) cash rate, now anticipating it will remain unchanged throughout 2026. According to economist Luci Ellis, the RBA’s current hawkish stance seems to already account for recent temporary inflation increases. Westpac is one of Australia’s four major banks, providing a wide range of financial services to individuals and businesses. The bank operates across Australia, New Zealand, and parts of the Asia-Pacific region.
Ellis projects that inflation will gradually decline during 2026. However, the moderation is not expected to be rapid enough to trigger any monetary easing by the central bank. Westpac foresees the potential for rate cuts to commence in February and May of 2027, provided that the broader economic outlook remains consistent with current forecasts.
Despite the current outlook, Ellis noted that risks persist on both sides of the equation. A significant weakening of the labour market could lead to earlier-than-anticipated rate cuts. Conversely, further unexpected increases in inflation could prompt a near-term rate hike, although Westpac considers this scenario to be relatively improbable.
Ellis suggested that any tightening of monetary policy would likely necessitate a downward revision of growth, inflation, and labour market forecasts. Such a scenario could also potentially lead to a policy reversal sometime in 2027, should economic conditions warrant a change in course.
