Key points
  • Westpac has redoubled its conviction of an RBA cash rate increase in August
  • The bank says this follows analysis of recent RBA communications
  • However, Westpac says it is now less convinced of a follow-up cash rate hike in September

Westpac is the only big bank backing an August cash rate increase despite markets broadly expecting no more hikes in the current upcycle.

But on Friday afternoon, Westpac issued an update stating its conviction of an August hike "has increased".

Westpac chief economist Luci Ellis said this was due to recent Reserve Bank of Australia (RBA) communications highlighting reasons to be hawkish, and specifically to "front-load" policy responses to inflation risks.

Dr Ellis referenced minutes of the monetary policy board meeting in June and recent speeches from senior RBA staff.

But she also provided a get-out clause, saying an August cash rate increase is still subject to confirmation from June quarter Consumer Price Index data, due to be released on 29 July.

Fuel cost effects still to play out

Westpac economists have long been warning of pass-through from fuel cost shocks, sparked by the Middle East conflict, in fanning ongoing inflationary pressures.

While the bank's latest update said its fuel shock outlook is less hawkish than before, it notes the latest outbreak of hostilities in the region underlines the possibility of further pressures.

Beyond the RBA's August meeting, Dr Ellis said Westpac still regards a follow-up rate hike in September as the most likely outcome, but conceded the bank's conviction about its occurrence and timing has declined.

Westpac also brought forward its forecast of future rate cuts to August 2027 rather than early-2028 as previously expected.

This brings the bank's 2027 forecast more into line with its big bank peers who all expect to see a cash rate cut around mid-2027.

Nonetheless, Westpac remains the outlier among the big four in sticking to its prediction of further cash rate increases while CommBank, NAB, and ANZ believe the current hiking cycle is over. 

The RBA's next monetary policy board meeting is scheduled for 10-11 August.

The board has so far raised the cash rate three times in 2026 but held the rate at 4.35% at its last meeting in June.