Westpac has updated its cash rate forecast, now anticipating two additional 0.25% rate cuts in 2026, alongside previous predictions for rate reductions in 2023. The bank’s revised outlook follows a shift in expectations regarding inflation.
According to Westpac, if these rate cuts materialize, homeowners could see considerable reductions in their monthly mortgage payments. This updated forecast, however, provides no specific timeline for these changes beyond the general 2026 predictions.
As reported by Finance Yahoo, these adjustments are contingent on ongoing economic data, including inflation and labor market trends, which could further influence the timing of any rate cuts.
Forecasted Cash Rate Cuts
The latest revision comes as Westpac lowers its inflation outlook.
In addition to its previous prediction of two rate cuts this year, expected in August and November, the bank now foresees two additional cuts in early 2026, in February and May.
This would bring the cash rate down to 2.85%, from the current 3.85%, and the peak of 4.35% seen earlier. Westpac chief economist Luci Ellis stated:
That would mean RBA cash rate will bottom out at 2.85%, from a peak of 4.35%, and 3.85% currently. We regard the cash rate at 2.85% as being at the lower end of the ‘neutral range’.
Ellis also mentioned that the second of the two rate cuts could come earlier in December and February or February and March, should inflation and the labor market weaken further in late 2025.
Relief for Homeowners
For homeowners, the potential relief could be substantial. A 0.25% rate cut is expected to reduce monthly repayments on a $600,000 mortgage by $90. If Westpac’s forecast holds and four rate cuts are implemented, homeowners could save up to $349 per month by mid-2026.
Sally Tindall, Director of Data Insights at Canstar, called this expected relief a “huge” boost for households struggling with high mortgage repayments. However, she reminded borrowers that this is a forecast and not a certainty:
While the timing of the next cut is still up in the air, the prospect of at least one more is, at this stage, likely – she said.
Likelihood of a July Rate Cut
While markets anticipate a 0.25% rate cut at the Reserve Bank of Australia’s next meeting in July, not all economists agree. According to Ellis, Westpac doesn’t believe that disappointing GDP data or other upcoming economic indicators will push the RBA to reduce rates next month. Ellis stated:
The May labour force data out next week is likely to show a labour market that still looks tighter than the RBA’s view of full employment.
Moreover, Sally Tindall of Canstar added:
The RBA won’t hesitate to act in July should global volatility ramp up, but the more likely scenario is that it will sit tight until after the June quarter CPI results, due out at the end of next month.
Economic Activity and Inflation Concerns
The Australian Bureau of Statistics (ABS) revealed that economic activity grew just 0.2% in the March quarter, down from 0.6% in the December quarter.
Despite the weak GDP data, the inflation outlook for the June quarter suggests that CPI might come in slightly above the RBA’s forecast.
While May’s CPI indicator is expected to be low, the inflation data from April and May points to the possibility that the June quarter CPI will exceed the RBA‘s expectations. This could influence the timing of any future rate cuts.
