Westpac forecasts the RBA will keep rates steady at 4.35% until mid-2025 as inflation and labor data undershoot May projections.
Westpac has reinforced its view that the Reserve Bank of Australia will maintain its cash rate at 4.35% through mid-2025, citing inflation and labor market data that fell short of the RBA’s May forecasts. The bank interprets the RBA’s latest language—hiking only if upside inflation risks materialize—as a de facto downgrade of its tightening bias, despite the central bank’s refusal to rule out further increases.
The RBA held rates steady for a second consecutive meeting, replacing its previous “if needed” guidance with a narrower condition tied to upside risks. Trimmed mean inflation and labor market weakness have further reduced the likelihood of near-term hikes, though Westpac cautions the RBA remains cautious about persistent inflation risks, particularly from energy prices and geopolitical developments.
Markets have priced a lower probability of additional tightening, reflecting softer economic data and the RBA’s more conditional stance. Westpac’s base case aligns with this view but leaves room for a potential hike if inflation pressures reaccelerate.