Australia’s major lenders are aligning their forecasts in anticipation of a possible Reserve Bank of Australia (RBA) cash rate cut in July. On Wednesday, Westpac revised its expectations, joining both Commonwealth Bank of Australia (CommBank) and National Australia Bank (NAB) in predicting that the RBA will lower the official cash rate at its upcoming meeting scheduled for July 8.
This shift in stance follows the release of new monthly inflation figures that revealed a further easing in consumer price growth, prompting analysts to reassess the RBA’s likely course of action. The three banks now expect a more immediate response from the central bank, reflecting increased market confidence in a near-term policy shift.
Banks Anticipate a July Cut After Inflation Dips Further
The catalyst for Westpac’s updated forecast was the headline inflation rate, which dropped to 2.1% in May, down from 2.4% in April. Core inflation, measured by the trimmed mean, also fell to 2.4%, its lowest level since November 2021. These figures indicate that inflation is returning closer to the RBA’s target midpoint of 2.5%, reducing the urgency for further restrictive monetary policy.
Westpac’s chief economist Luci Ellis stated that the bank now expects the RBA to act sooner than previously projected. Although a July move is not guaranteed, markets are currently pricing in an 86% chance of a cut next month. Ellis acknowledged the possibility of a delay but emphasized that the RBA might opt to act now rather than justify a continued pause.
Differences Remain Among The Big Four
While Westpac, CommBank, and NAB have aligned on the expectation of a July cut, ANZ remains an outlier, maintaining its forecast for an August reduction. CommBank, in particular, anticipates not only a cut in July but an additional reduction the following month, suggesting a more aggressive easing cycle.
The divergence reflects ongoing uncertainty about how the RBA will interpret near-term inflation data. Ellis noted that the upcoming June quarterly Consumer Price Index (CPI) could still show elevated figures, reinforcing the need for caution. Still, she argued that the central bank is already inclined to ease policy and may prefer to proceed with cuts rather than postpone them in the face of softening inflation.
Westpac joins CommBank and NAB in major RBA interest rate call for mortgage relief https://t.co/v8lvmygbJN
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Implications for Mortgage Holders and Borrowers
Should the RBA proceed with a 0.25 percentage point cut, mortgage holders could expect modest relief. According to estimates by Canstar, a homeowner with a $600,000 loan over 25 years could see monthly repayments fall by around $90. This would mark a tangible shift after a prolonged period of rate hikes and elevated borrowing costs.
The anticipated rate reductions come at a time when household budgets remain under pressure from higher living costs and subdued wage growth. The potential easing cycle would be particularly significant for variable-rate mortgage holders, many of whom have absorbed successive increases since early 2022.
Westpac Outlines Path for Further Cuts
Beyond July, Westpac has laid out a scenario involving three additional cuts: in November, February, and May, which would bring the cash rate down to 2.85%. This projection is conditional and depends on the RBA’s tone following the July meeting, as well as future data releases on inflation and employment.
Ellis cited the tight labor market, weak productivity growth, and rising demand-driven pricing as key factors shaping the central bank’s outlook. These dynamics are likely to influence the RBA’s decision-making process in the months ahead, as it balances economic support with inflation control.