Westpac chief economist Luci Ellis has updated her cash rate forecast after stronger-than-expected economic data pointed to more persistent inflation pressures.

Ellis said a 25 basis point rate hike in November, taking the cash rate to 4.60 per cent, is now Westpac’s base case.

“The main reasons for the shift are the growing evidence of a more resilient household sector, and a larger-than-expected impetus from the spillovers from the data centre boom,” she said.

“Much of the upside surprise on household spending has been showing up in (imported) EVs and overseas travel.”

“The underlying story is one of a global technology and investment boom driving stronger business investment in Australia, supported by healthy business balance sheets,” Ellis added.

The revised forecast comes after recent gross domestic product (GDP) and inflation figures indicated demand is proving more resilient than anticipated and that inflationary pressures could persist for longer.

“National accounts and internal data have pointed to stronger household incomes in Q2 and onwards, which means spending will be more resilient over the near term even with sentiment stuck at historically weak levels.”

However, Ellis said it is unlikely the Reserve Bank of Australia (RBA) would use the recent data alone to justify a hike at its September meeting.

“Tactically, we believe RBA leadership would strongly favour a November hike over September,” she said.

“Overreacting to a noisy monthly print is something they have previously said they would not do.”

“On balance, we do not think a September hike is the most likely outcome and expect the MPB (Monetary Policy Board) to prefer to wait for the full quarterly inflation data and revised forecasts to confirm the need for a rate increase.”

Ellis said a November hike remained more likely but acknowledged “the probability of the September scenario is not zero.”

While Westpac has revised its near-term rates outlook, Ellis said the bank’s forecast for future rate cuts remains unchanged.

“We have not changed our assessment of the timing or number of cuts to the cash rate, pencilling in three 25bp cuts starting August 2027,” Ellis said.

National house prices expected to rebound in 2027
 

Ellis also updated Westpac’s housing market forecasts as part of the bank’s revised economic outlook.

National dwelling prices are now forecast to fall by 6 per cent across 2026, compared with Westpac’s previous forecast of a 3 per cent decline.

From peak to trough, Westpac is predicting national house prices to fall by 7.3 per cent.

Sydney dwellings are expected to record the steepest decline from peak to trough (-10.4 per cent), with Melbourne (-8.6 per cent) also expected to weaken materially.

Perth (-4.8 per cent), Brisbane (-4.0 per cent) and Adelaide (-2.1 per cent) are expected to be more resilient.

Despite the softer near-term outlook, Westpac forecasts a recovery from 2027 as interest rates are expected to ease.

National dwelling prices are forecast to rise 3 per cent in 2027 and a further 8 per cent in 2028.