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Big 4 banks now back November rate hike
The big four banks are now united in expecting another interest rate hike before the end of the year, after Westpac became the final major lender to forecast a November increase.
Westpac has shifted its cash rate forecast to a 25-basis-point hike in November, taking the cash rate to 4.6 per cent.
The move puts Westpac alongside Commonwealth Bank and Australia and New Zealand Banking Group (ANZ), which also forecast a hike in November following a rise in the consumer price index (CPI) to 3.5 per cent in the 12 months to July 2026, from 3.8 per cent in the 12 months to June.
National Australia Bank (NAB) was the only bank forecasting a potential September increase and the possibility of another hike in November.
Westpac chief economist Luci Ellis said the likelihood of another increase had risen as the economy showed greater resilience than previously expected.
The change came as economic data pointed to stronger household incomes and spending, while investment linked to the data centre boom was expected to provide a larger boost to the economy than previously forecast.
“The main reasons for the shift are the growing evidence of a more resilient household sector, and a larger-than-expected impetus from the spillovers from the data centre boom,” Ellis said.
National accounts and Westpac’s internal data pointed to stronger household incomes from the second quarter onwards, which the bank expected to support spending even while consumer sentiment remained historically weak.
For investors, the stronger household outlook could provide some support for economic activity, but it could also create a more challenging interest rate environment if stronger demand makes it harder for inflation to fall.
Additionally, the bank said that an unprecedented pipeline of investment in data centres, renewable electricity generation and electricity distribution was expected to drive business investment and gross domestic product (GDP) growth.
However, Westpac said the investment boom could also limit the pace of disinflation, adding to the case for the Reserve Bank of Australia (RBA) to keep monetary policy restrictive.
Despite moving its base case to November, Westpac did not completely rule out an earlier move.
“Tactically, we believe RBA leadership would strongly favour a November hike over September,” she said.
Westpac said it expected the RBA to wait for the full quarterly inflation data and revised forecasts before confirming the need for another increase.
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However, Ellis said a September hike remained possible and that the Monetary Policy Board could be split over the decision.
“If the internal members felt the situation was more urgent and wanted to get the hike done in September, we believe they could muster a majority of Monetary Policy Board votes in favour,” she said.
Rates higher for longer
Westpac’s latest forecast effectively leaves the cash rate path higher than previously expected, with the bank forecasting a 4.6 per cent cash rate at the end of 2026.
It did not, however, change its view on the eventual easing cycle.
The bank continued to forecast three 25 basis point cuts beginning in August 2027, taking the cash rate to 4.1 per cent at the end of 2027 and 3.85 per cent at the end of 2028.
Ellis said the bank expected the RBA to take a cautious approach to easing monetary policy.
“We do not have strong conviction about the exact timing of the unwind of restrictive monetary policy, but we expect the RBA to take a cautious approach given last year’s experience and the bank’s downbeat starting assessments of capacity, labour supply and productivity growth,” she said.
Westpac’s forecasts pointed to weaker housing prices in the near term, stronger economic growth than previously expected and a slower path towards lower borrowing costs.
The bank expected supply capacity to rise as infrastructure projects were completed and data centre production benefited from shorter lead times.
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