Here's when Westpac says the RBA will cut interest rates after last week's inflation data
Animation of a man measuring a percentage sign, symbolising rising interest rates.
The Westpac Banking Corp (ASX: WBC) economics team has been one of the most accurate interest rate predictors in recent times.
In light of this, it can pay to listen to what Australia's oldest bank says about rates. Especially in the current uncertain environment.
As I covered here last week, the bank was predicting that the Reserve Bank of Australia would still cut interest rates before the end of the year. It then expected a series of cuts in 2025, much to the delight of borrowers.
But with Australian inflation coming in hotter than expected last week, has Westpac changed its tune on interest rates?
Let's take a look and see what its economics team is saying about last week's bombshell economic data.
Westpac on interest rates
Westpac's chief economist, Luci Ellis, notes that last week's inflation reading was not a surprise to her team. She said:
This week's inflation data were not a surprise to the Westpac Economics team and so did not change our view of the outlook for interest rates. As our Westpac Economics colleague Justin Smirk previewed last week, we had expected that base effects would lead the monthly indicator to print at 4% over the year to May. Clearly, the disinflation journey is becoming more difficult, and the RBA is becoming more nervous that its strategy may not work as planned. And as our colleague Pat Bustamante also highlighted recently, some recent state government budgets are not helping.
But while Westpac was not surprised, the big question is whether the RBA was surprised by the data. Ellis adds:
The real question is not whether we were surprised by the May inflation data but whether the RBA was. We can assume that the staff know how to account for one-off factors like changes in electricity rebates, or noise factors such as fruit and vegetable prices. Given their above-market forecast for June quarter headline CPI in the May Statement on Monetary Policy, we suspect that this week's data were no surprise to the RBA, either.
In light of this, Westpac is holding firm with its prediction for an interest rate cut at the November meeting. However, it does acknowledge that this is based on available data. Should data get ugly, Ellis isn't ruling out an interest rate hike. She said:
An ugly June quarter CPI release together with strong labour market data could tip the balance and force a rate hike, but this is not our base case and is not supported by currently available information.
As things stand, Westpac is forecasting the following from the RBA for interest rates from 4.35% today:
- November 2024: 4.1%
- March 2025: 3.85%
- June 2025: 3.6%
- September 2025: 3.35%
- December 2025: 3.1%
Hopefully Westpac is on the money with its forecasts and relief is on the way for homeowners.
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Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.