RBA August Rate Hike Probability Rises, Westpac Economist Says

The Reserve Bank of Australia (RBA) faces heightened expectations for an August interest rate hike, according to Westpac's Chief Economist Lucy Ellis. In a report released on local time, Ellis stated that recently published inflation and labor market indicators largely met expectations, and the RBA emphasized reasons to accelerate its tightening cycle with more rate increases in response to supply shocks—strengthening confidence in the August hike outlook. Westpac maintains its base case scenario of an additional rate increase in September.

Westpac Maintains September Rate Hike as Base Case

Westpac continues to project a September rate increase as its base case scenario. Ellis noted that while core inflation in the second half of 2026 will exceed the RBA's May forecasts, the overshoot will be smaller than previously anticipated. This assessment reflects slightly reduced confidence in the necessity of the September hike compared to earlier projections.

RBA Rate Cut Timeline Moved Forward to August 2027

The projected timing for rate cuts has been brought forward from early 2028 to August 2027. Ellis explained that the lower inflation trajectory in 2027 will be difficult for the RBA to ignore. However, she added that the central bank will adopt a cautious approach—drawing on the experience of 2025 when inflation rebounded shortly after rate cuts began—proceeding at a very gradual pace of 25 basis points per quarter rather than implementing preemptive cuts.

RBA Prioritizes Inflation Control Over Growth Concerns

Ellis assessed that the RBA's Monetary Policy Board (MPB) maintains the view that the economy is currently overheated and that a period of below-average growth is necessary to control inflation. The report indicated that despite signals of economic slowdown, the MPB will sustain its monetary tightening stance as long as growth remains below potential in order to manage inflation pressures.

Australian bond yields on local time [Source: Yonhap Infomax]

FAQ

What did Westpac's economist say about the RBA's August rate decision?

Westpac Chief Economist Lucy Ellis stated in a report released on local time that confidence in an August RBA rate hike has increased. She explained that recent inflation and labor market data largely met expectations, and the RBA emphasized reasons to accelerate its tightening cycle in response to supply shocks.

When does Westpac expect the RBA to begin cutting rates?

Westpac moved its rate cut timeline forward from early 2028 to August 2027. Ellis noted that while the lower 2027 inflation trajectory will be hard for the RBA to ignore, the central bank will proceed cautiously at 25 basis points per quarter, drawing lessons from the 2025 experience when inflation rebounded after initial cuts.