- Westpac is holding to its view there will be no further cash rate increase in 2026
- Westpac outlined its case, saying one monthly inflation print is not enough to lock in a hike as expected by other big banks
- But the bank concedes higher July inflation data raises the risk of a November cash rate increase
Westpac stands alone among the big four banks in not changing its cash rate outlook in the wake of this week's hotter-than-expected inflation data.
ANZ was the first to call to a November cash rate hike just hours after the July consumer price index (CPI) figures were released.
It was followed by Commonwealth Bank early the next morning with NAB going a step further and backing a September rate increase.
But Westpac chief economist Luci Ellis said one data point is not enough to "rush all the way to the other side of the boat and lock in a hike".
Beware monthly data
She reminded markets the Reserve Bank itself has emphasised the monthly dataset is "noisy" and its short history means seasonal patterns are unclear.
The Australian Bureau of Statistics switched to a complete monthly CPI in November 2025 as a primary measure of headline inflation.
Prior to that, it provided a partial monthly indicator but measured the full basket of goods and services on a quarterly basis.
Dr Ellis also cautioned against reading too much into the July data.
"The new financial year is a time when many businesses pre-price, with subsequent months more moderate," she said.
"This has been a pattern in the data in the past and might be again this year."
Mixed messages from data
Westpac's big three peers and other market analysts were quick to jump on subsequent household spending data as further confirmation the Reserve Bank would move to increase the cash rate again in 2026.
Household spending growth came in far higher than markets were expecting, accelerating to its fastest pace in more than three years.
But Dr Ellis said recent labour market and wages data "broke the other way", both coming in softer than the Reserve Bank was forecasting.
She acknowledged consumer spending has been resilient, but did not think the RBA will read "not outright contracting" as a sign of upside inflation risks crystallising.
That was the Reserve Bank's own stated terms for acting to further increase the cash rate.
From hawk to dove: what gives?
For rate watchers, Westpac's dovish stance is at odds with its previously hawkish position in expecting further cash rate hikes on top of the three consecutive increases to kick off 2026.
This was predicated on expected inflationary pressures from fuel price flow-ons to other parts of the economy in the wake of the Middle East conflict.
But Dr Ellis said risks from this source have faded and that if the RBA raised rates, it would be more of an insurance hike, reflecting unease about the slow pace of returning inflation to its 2-3% target band.
In their reasons for calling a November rate hike, CommBank economists believed the RBA would "lose patience".
'Awkward' September meeting
Dr Ellis said a November rate hike is more plausible than one in September, given the "awkward timing" of next month's meeting.
The August CPI is scheduled to be released the following day and if it comes in lower than expected, the RBA's monetary policy board could look "premature", she said.
Dr Ellis, a former Reserve Bank assistant governor, gave her assurance the RBA does not receive CPI data ahead of the market.
Even a November hike would still require confirmation from the intervening data, she said.
Dr Ellis said there are "near-future states of the world" which would lead Westpac to change its call to a November rate hike but that investors should allow for some risk of one later this year.
In the meantime, she said one monthly CPI print is not enough evidence to fully price in a hike.
The Reserve Bank's next monetary policy meeting is scheduled for 28-29 September.
Putting money and mouth together
As if to underscore its conviction interest rates won't see a further rise in 2026, Westpac shaved another five basis points off its best term deposit rate on Friday.
Westpac's 12-month special offer rate for existing Westpac customers opening or renewing term deposits online has dropped to 5.15% p.a. (down from 5.20% p.a.).
It's the second week running Westpac has dropped its 12-month special offer rate for deposit amounts between $5,000 and $2 million, also shaving five basis points off the rate the previous Friday.
The new special offer, online only term deposit rate of 5.15% p.a. also applies to other brands in the Westpac Group - St George, Bank of Melbourne, and BankSA.
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