Westpac Economics revises RBA rate cut timeline, next cut still in August but more next year

Luci Ellis
03:00pm June 12 2025

A lower outlook for inflation later this year and early in 2026 means that Luci Ellis now expects an additional two cuts in 2026 following the two this year. (Image source: Pexles)

Westpac Chief Economist Luci Ellis is sticking with her call of an August RBA interest rate cut, despite increasing market expectations of a move in July.

The team has not changed its view that the RBA will cut twice more this year, with another reduction anticipated in November as well as the one in August. Both cuts are expected to be 0.25 percentage points.

But a lower outlook for inflation later this year and early in 2026 means that Ellis now expects an additional two cuts in 2026 following the two this year. These two cuts, also both 0.25 percentage points, are expected to occur in February and May 2026.

That would mean the RBA cash rate will bottom out at 2.85%, from a peak of 4.35%, and 3.85% currently, according to Ellis.

Ellis said the RBA Board described itself as having a preference to move cautiously and predictably which she believed was code for not wanting to do back-to-back cuts.

“It also made it clear in the minutes that this was about reducing restrictiveness, not moving quickly back to neutral in the style of the Federal Reserve last year. And the Board is not in the habit of changing policy just because the market is pricing it in.”

Ellis said it was possible that some of these cuts come a bit faster than the ‘cautious’ path Westpac Economics have pencilled in.

“This will depend on the evolving data flow, particularly for the labour market and inflation, as well as the RBA’s evolving beliefs about what constitutes full employment.”

Luci Ellis

Luci Ellis is Westpac’s economic spokesperson and is responsible for all of our economic research. She was previously Assistant Governor (Economic) at the Reserve Bank of Australia from December 2016 until October 2023. Prior to that, Luci was Head of Financial Stability Department at the RBA for eight years, spent two years on secondment at the Bank for International Settlements in Basel, Switzerland, and held several other senior positions at the RBA over a three-decade career in central banking. Luci has been a member of the Australian Statistics Advisory Council, the statutory advisory body to the Australian Bureau of Statistics, since November 2015. Luci holds a PhD from the University of New South Wales, a Masters in Economics degree from the Australian National University and a first-class Bachelor of Commerce (Honours) degree from the University of Melbourne.

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