SYDNEY, March 31, 2026, 08:07 AEDT
Westpac Banking Corp has lifted its outlook for Australia’s key interest rate, now predicting the Reserve Bank will deliver three more hikes this year, kicking off in May, as surging fuel prices tied to the war ripple through the broader economy. The revised peak forecast stands at 4.85%, a level not seen since late 2008.
Only two weeks after the RBA bumped the cash rate to 4.10% on a narrow 5-4 vote, the change is hitting. Canberra, meanwhile, is trimming fuel excise for three months to help shield households from surging petrol and diesel costs.
Westpac chief economist Luci Ellis said the bank is now penciling in rate hikes for June and August, following the May move it had already forecast. The shift comes as Westpac assumes the Strait of Hormuz will be “essentially closed for eight weeks,” prompting what Ellis calls a “surprisingly rapid pass-through” from fuel and oil-based products to broader prices. WestpacIQ
Westpac is sticking with a 5.4% call for headline consumer inflation in the June quarter, tax cut or not. For trimmed mean inflation — the RBA’s preferred core measure, which ignores the most extreme price moves — the bank sees a peak around 4% later this year.
Things have deteriorated quickly. Brent kicked off Monday at roughly $115.66 a barrel, following a 59% surge in March. Meanwhile, the government’s move to cut excise by half is expected to knock 26.3 Australian cents per litre from fuel prices, with the price tag for that relief hitting about A$2.55 billion.
Westpac’s updated outlook now tops the 4.35% peak that Commonwealth Bank and National Australia Bank put out earlier this month. The new track is roughly in step with money markets, which are factoring in three additional hikes this year.
Westpac tumbled 4.05% to A$39.09 by the close on Monday. Banks dragged the ASX 200 lower as investors digested climbing oil prices and braced for potential rate hikes.
That outlook isn’t set in stone. Ellis pointed out there are “risks on both sides.” Iran has allowed a handful of ships through the strait so far, and fuel supplies might rebound quicker than Westpac’s scenario suggests. There’s also a chance domestic firms hold back from passing new cost hikes along to consumers. WestpacIQ
The RBA’s been sounding this alarm, too. Just last week, Assistant Governor Christopher Kent warned that if war in the Middle East drags on, growth could take a hit and inflation expectations might slip off anchor—even though central banks can’t prevent the first round of supply shocks.
Westpac now expects the steeper rate trajectory to dampen consumer spending, weaken the jobs market, and send unemployment up to roughly 5%—a notch higher than the 4.7% it projected just days ago. The bank has also delayed any anticipated rate cuts out to 2028, and plans to bump up variable home-loan rates by 0.25 percentage point starting March 31, following the RBA’s move earlier in March.
