Westpac says the Reserve Bank’s rate-hiking cycle has probably ended. Its chief economist argues that a deepening housing downturn and early signs of weaker consumer spending make another rise unlikely.
In her weekly note, Luci Ellis (pictured) said the bank already believed the cash rate had peaked after November’s increase, and that its conviction had since strengthened. Westpac is lowering its 2027 forecasts for economic growth, the labour market, and housing, and now expects unemployment to peak above 5%.
“Based on this revised forecast profile, an increase in the cash rate from here would be unlikely and – we would argue – undesirable,” Ellis wrote.
Ellis pointed to Governor Michele Bullock’s comment after the November meeting that it was a good time to “take stock” of the tightening so far. Westpac and the market read this as a sign the board will pause in December. The 6–3 split vote also suggested that some external board members are paying closer attention to downside risks.
A February hike can’t be ruled out, Ellis said, and the board will at least consider one. But she believes a rise in 2027 would need a significant new inflation shock, and that otherwise it would be a policy mistake.
“Policy is clearly restrictive, and the risk of overdoing the inflation correction is growing,” she wrote.
Housing is one key reason for the bank’s change of view. Ellis said turnover and financing activity have both come in below its earlier expectations.
“The housing market has undershot our forecasts over the past couple of months,” she said.
Recent lending figures point the same way. The latest ABS data shows the value of new home loans recorded its biggest quarterly fall since 2002 in the September quarter, with first-home buyer commitments down 8.6%.
Mortgage loan inquiries fell again in October, following the September rate rise, after holding fairly steady in previous months. The full effect of November’s increase has yet to show up in the data.
Consumers are also beginning to feel the pressure. Westpac’s Card Tracker shows discretionary spending on services is falling again in the December quarter, adding to weakness already seen in discretionary goods. Lower oil prices are easing inflation risks too: Dated Brent crude is nearly a quarter cheaper than when the RBA finalised its forecasts on 28 October.
Others are less certain. realestate.com.au senior economist Angus Moore this week flagged the possibility of a further hike early next year, saying housing conditions were likely to stay soft.
Westpac expects to publish its revised forecasts in its November Market Outlook.
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