Westpac has warned mortgage brokers and borrowers that further interest rate increases remain on the table, with the major bank forecasting the Reserve Bank of Australia (RBA) may need to lift the cash rate again as early as August as inflation risks persist.
The bank’s latest outlook has shifted towards a more hawkish stance, with economists pointing to ongoing inflation pressures and the risk that price growth could prove harder to contain than previously expected.
Westpac Chief Economist Luci Ellis said the near-term path for interest rates remained tilted towards further tightening, with upcoming inflation data expected to play a key role in determining the RBA’s next move.
"The post-meeting communication added language stating that the monetary policy board (MPB) stood ready to hike if needed," Ellis said. "This drafting decision is unusual for an RBA statement, and was a stronger steer than previously. It suggests that the MPB wanted to hose down recent speculation that they are done hiking rates. Its assessment of the real economy in both the post-meeting communication and the minutes was sanguine, and it is clearly more worried about upside risks to inflation than downside risks."
Westpac's comments come after the RBA held the official cash rate (OCR) at 4.35% during its June meeting on monetary policy. The nation's central bank had already lifted rates three times in 2026, as it battles inflationary pressures and global uncertainty. The RBA has repeatedly signalled it is unlikely to ease monetary policy until inflation is back within its target inflationary range of 2% to 3%.
Meanwhile, even though inflationary pressures have cooled slightly, it remains elevated.
Headline CPI rose 4% in the year leading up to May, eased slightly from 4.2%, the month before, while trimmed mean inflation — which many economists consider a better indicator of inflationary pressures because it strips out goods with volatile price changes — increased to 3.6%, up from 3.4% in the 12 months to April. Both figures were above the RBA target inflation band.
Furthermore, following the June meeting, RBA Governor Michele Bullock said the decision to keep rates on hold "does not rule out further tightening in monetary policy if that is what is required to get inflation down."
Westpac has pencilled in an August rate hike, and has also not ruled out a second increase in September.
"We still regard a follow-up rate hike in September as the most likely outcome, but our conviction about its occurrence and timing has declined," Ellis said. "The MPB continues to believe that the economy is too tight and requires a period of below-average growth to get inflation under control."
The economist added that rate cuts will likely start in 2027, compared with the previous estimate of early 2028.
National Australia Bank (NAB) also expects a hold at the upcoming meeting, but is forecasting the RBA's next move will likely be a decrease, although the timing remains unclear.
Other factors are at play too, influencing the RBA's next move, including geopolitical tensions in the Middle East and recent budget changes.
For mortgage brokers, the forecast reinforces the need to continue preparing clients for a range of interest rate scenarios, particularly borrowers who have limited repayment buffers, or who are considering refinancing.
The RBA meets next on the 10 and 11 of August to discuss monetary policy.
