Key points
  • Westpac is now forecasting a cash rate increase in November
  • It joins its big four peers in expecting a near-term increase in interest rates
  • Westpac had previously dismissed the case for another rate rise in 2026 but updated its outlook based on resilient household incomes and flow-ons from the data centre boom

Westpac had been the outlier among the big four banks, forecasting no more cash rate increases in the current upcycle.

But on Tuesday afternoon, Australia's second-largest bank updated its outlook, making a November rate hike its base case.

Westpac chief economist Luci Ellis said the changed forecast is on the back of more resilient household incomes and larger spillovers from the data centre boom than the bank had foreseen.

She said household spending will be more resilient in the near term, even with sentiment stuck at historically weak levels.

Earlier in the day, Westpac's own consumer sentiment index, released in conjunction with the Melbourne Institute, showed consumer confidence dropped sharply in September, wiping out gains of the previous two months.

"Although the housing market is looking weaker than our previously published forecasts, its impact on consumer spending is more than offset by the wider boost coming from a globally driven surge in tech-related spending," Dr Ellis said.

She said an "unprecedented pipeline" of investment in data centres and associated renewable electricity is expected to drive business investment and, in turn, GDP growth.

This, she said, would also limit the pace of disinflation.

November, not September

Dr Ellis said a November cash rate increase was more likely than one later this month.

However, she said if monetary policy board members felt the situation was more urgent, Westpac believed they could muster votes in favour of a September rate hike.

"[We] expect the MPB [monetary policy board) to prefer to wait for the full quarterly inflation data and revised forecasts to confirm the need for a rate increase," she said.

September quarter inflation data is due to be released on 28 October, the week before the RBA's November meeting on 2-3 November.

She said this would confirm the need for a rate increase although stressed the "probability of the September scenario is not zero".

Westpac's about face

Westpac economists had held firm to their view of no further rate hikes, even in the face of data flows firming the odds of another interest rate hike before the end of the year.

See also:

ANZ was the first of the big banks to call a November rate hike just hours after hotter-than-expected July inflation figures were released on 27 August.

CommBank jumped on board the next day while NAB judged the cash rate hike would be in September. 

The Reserve Bank's next meeting on monetary policy is scheduled for 28-29 September.