Last week certainly was a big one for interest rates in Australia.
The release of inflation data from the Australian Bureau of Statistics rocked the market and appeared to bring the curtain down on the Reserve Bank of Australia's (RBA) rate cut cycle.
But is that actually the case? Let's see what the economics team at Westpac Banking Corp (ASX: WBC) is saying about the outlook for interest rates.
Where are interest rates going?
The good news for borrowers is that Westpac doesn't believe that interest rate cuts are over.
Its economists Illiana Jain and Ryan Wells highlight that electricity prices were to blame for the spike and don't expect this pace of inflation to be sustained in 2026.
As a result, they have retained their view on the outlook for inflation and interest rates in Australia. They said:
It was a historic week in Australia, marked by the ABS publishing the October CPI – the first complete set of monthly inflation data. In the event, it surprised markets materially to the upside on both a headline (3.8%yr) and trimmed mean (3.3%yr) basis, although headline came in marginally lower than our forecast of 3.9%. Base effects around electricity prices, due to government subsidies, was the chief culprit behind the lift in headline inflation.
On the firmer trimmed mean result: around a third of the basket is running above 5%yr, but most of these components are administered prices, known supply shocks or volatile items, downplaying the impact of demand-side strength. Given this, we do not suspect such a pace of inflation to be sustained in 2026, so we retain our view on the outlook for inflation and interest rates.
Westpac's forecasts
Westpac isn't expecting the RBA to cut rates at next month's monetary policy meeting, but it doesn't think homeowners will have to wait too long for further relief.
According to its weekly economic note, Australia's oldest bank continues to forecast the cash rate to be taken down from 3.6% to 3.35% by June of next year. After which, it expects a further cut to 3.1% by September 2026.
The even better news for borrowers is that Westpac doesn't see potential for an interest rate hike any time soon. In fact, the bank's economics team believes that the cash rate will then remain at 3.1% until at least December 2027.
