SYDNEY, May 11, 2026, 00:03 (AEST)
- Westpac has shifted its forecast, expecting RBA rate hikes in August and September rather than in June and August.
- Fuel prices might be enough to push underlying inflation higher than the RBA’s current projections, the bank says.
- Westpac posted a profit miss and flagged a rise in bad-debt provisions, prompting the call.
Westpac Banking Corporation is now penciling in Reserve Bank of Australia rate hikes for August and September, scrapping its earlier call for moves in June and August. Chief economist Luci Ellis said a June hike remains possible—just not the “base case”—after the central bank suggested it had time to evaluate the fallout from the Middle East shock. Westpac
Timing is key here: Westpac isn’t declaring the rate cycle finished. Hitting pause in June might offer short-term relief for borrowers, though the bank continues to advise clients to brace for more tightening as the year moves on.
On May 5, the RBA lifted its cash rate by 25 basis points to 4.35%, noting that higher fuel prices were pushing inflation up. The central bank flagged concerns about “second-round effects”—that is, fuel and energy costs feeding into the broader prices of goods and services. Reserve Bank of Australia
Westpac’s argument hinges on that pass-through effect. According to Ellis, the bank uses oil and fuel price assumptions for its inflation forecasts that are set higher than the futures curve the RBA relies on. She also pointed to home-building costs as a spot where higher non-labour expenses could show up. For now, trimmed mean inflation—the core gauge that strips out the wildest price changes—remains the main number to track.
Westpac’s rate decision lands right after the bank announced its earnings last week. Statutory net profit came in at A$3.4 billion; strip out notable items and that number ticks up to A$3.5 billion. The bank posted a common equity tier 1 ratio of 12.4%, serving as its main capital buffer, and declared a fully franked interim dividend of 77 Australian cents. Chief Executive Anthony Miller described Westpac’s stance as “prudent,” with provisions increased despite signs of easing customer stress. Westpac
Westpac turned in a A$3.41 billion net profit for its first half, coming up short of the A$3.47 billion consensus from Visible Alpha, Reuters reported. Credit impairment charges climbed sharply, reaching A$443 million compared to A$250 million a year ago. The bank’s net interest margin edged down, hitting 1.89% after 1.92% previously.
Australia’s big banks see it differently. Belinda Allen, head of Australian economics at Commonwealth Bank of Australia, said the bank expects rates to remain steady through 2026—though, as she put it, “a further rate hike cannot be ruled out.” NAB is also holding the RBA at 4.35% for now, but flagged that the risks lean toward another move. CommBank
Westpac’s forecast isn’t locked in. A quick de-escalation in the Middle East and cheaper fuel could take pressure off the RBA, possibly keeping rates steady. But if the disruption drags on, expect the opposite: inflation stubbornly high, growth taking a hit. Right now, the RBA is penciling in oil prices drifting lower in the next few quarters, with the cash rate set to hit 4.70% by the close of 2026.
Westpac shareholders face more than just the question of loan growth now. The challenge: juggling higher rates, thinner margins, and increasing provisions—all without inflicting a tougher blow on households or business borrowers.
The August meeting now stands as the next live marker. Westpac isn’t betting on a move in June anymore, though the bank hasn’t fully ruled out another hike.
