Westpac drops rate hike call after softer inflation

• Westpac now expects the Reserve Bank of Australia (RBA) to hold the cash rate in August rather than deliver another hike.
• The bank’s economists say a downside surprise in Q2 inflation removed the near‑term case for tighter policy, even as RBA messaging remains hawkish.
• Westpac still sees the first rate cuts starting around August 2027, but notes a November 2026 hike remains a risk if inflation re‑accelerates.

Westpac now forecasts a “hawkish hold” from the RBA in August, saying softer‑than‑expected Q2 inflation has broken lower than both its own and the central bank’s projections.

Chief Economist Luci Ellis said market services and housing‑related inflation components came in below expectations, which she believes undermines the case for another near‑term rate increase.

“We no longer expect rate hikes by the RBA this year,” said Westpac Chief Economist Luci Ellis, who added that the earlier pass‑through of Middle East‑related energy shocks has not continued in recent months.

Ellis noted the labour market is already slightly weaker than the RBA assumed in May, with higher unemployment and participation rates and revised underemployment data likely to weigh against arguments for a further hike.

Westpac still flags some risk of a November rate rise if inflation picks up again in the third quarter, but said this is now a downside scenario rather than its base case.

The bank continues to expect the RBA’s first easing move to come around August 2027, and argues the latest benign inflation print raises questions about the central bank’s downbeat view on supply capacity and productivity.

Westpac said it expects RBA communication to stay hawkish and keep the option of further hikes alive, even as recent data point toward a longer period of steady rates before any eventual cuts.

At the time of reporting Perpetual’s share price was AUD 37.77.