SYDNEY, March 31, 2026, 08:07 AEDT
Westpac Banking Corp has raised its forecast for Australia’s benchmark interest rate and now expects the Reserve Bank to tighten three more times this year, starting in May, as war-driven fuel costs seep into the wider economy. Its new peak of 4.85% would take the cash rate to the highest level since late 2008. 1
The shift comes just two weeks after the RBA lifted the cash rate to 4.10% in a split 5-4 decision. It also lands as Canberra cuts fuel excise for three months to cushion households from a spike in petrol and diesel prices. 2
Luci Ellis, Westpac’s chief economist, said the bank had added June and August hikes to the May move it already expected because it now assumes the Strait of Hormuz will be “essentially closed for eight weeks” and sees a “surprisingly rapid pass-through” from fuel and oil-based products into other prices. 1
Westpac said headline consumer inflation could still hit 5.4% in the June quarter even after the tax cut. It expects trimmed mean inflation — the RBA’s core gauge, which strips out the largest price swings — to peak at about 4% later this year. 1
The backdrop has worsened fast. Brent opened around $115.66 a barrel on Monday after a 59% jump in March, while the government said halving excise would shave 26.3 Australian cents a litre off fuel prices at a cost of about A$2.55 billion. 3
Westpac’s new path is steeper than the 4.35% peak published earlier this month by Commonwealth Bank and National Australia Bank. The revised profile broadly lines up with money-market pricing for three more moves this year. 4
The market reaction was sharp. Westpac shares closed at A$39.09 on Monday, down 4.05%, while banks led losses on the ASX 200 as traders weighed higher oil and the prospect of more rate increases. 5
That view could still change. Ellis said there were risks “on both sides”: Iran has already let some ships through the strait, fuel supply could recover faster than Westpac assumes, and businesses at home may prove less willing to pass on fresh cost increases. 1
The RBA has been flagging the same tension. Assistant Governor Christopher Kent said last week a prolonged Middle East war could damage growth and unsettle inflation expectations, even if central banks cannot stop the initial supply shock. 6
Westpac said the higher rate path would slow consumption, soften the labour market and lift unemployment to about 5%, above the 4.7% peak it had forecast only days earlier. It also pushed out any rate cuts to 2028 and is due to lift variable home-loan rates by 0.25 percentage point from March 31 after the RBA’s March move. 1
