Westpac, one of Australia's big four banks, has revised its cash rate forecast and now expects the Reserve Bank of Australia (RBA) won't make its first rate cut until May 2025.

That's three months later than its previous prediction of a February 2025 cut – a forecast still held by CommBank and ANZ. 

"An earlier start in February or March is still possible, but it is no longer more likely than a May start date," Westpac chief economist Luci Ellis said on Thursday.

Eventual rate cuts to come hard and fast: Westpac

Westpac anticipates a rapid series of rate cuts once the RBA begins easing monetary policy.

Back-to-back cuts in May and July are on the cards, with the cash rate projected to drop by 100 basis points over seven months to end 2025 at 3.35%.

However, the bank hasn't ruled out the possibility that the RBA may delay action until the second half of next year.

"A later start date is also a risk scenario, if inflation does not decline as the RBA is currently forecasting, let alone our own marginally more dovish expectation," Ms Ellis said.

"That said, the longer the RBA board waits, the faster they will need to move thereafter, as it would then be more likely that they have hesitated too long."

Delaying a rate cut for too long risks tipping Australia into recession – an outcome the central bank is determined to prevent.

Westpac's about-face follows the release of the minutes from the RBA board's November meeting, where it chose to keep the cash rate at its 13-year high.

The minutes show the board wants to see two consecutive quarters of declining inflation before it makes its long-awaited move.

Westpac economists were also swayed by a sharp uptick in consumer confidence and resilience in the labour market.

"We are mindful, though, that things can pivot quite quickly, and that the RBA's view of the economy looks somewhat more hawkish than we think is warranted," Ms Ellis said.

Westpac aligned with NAB once more

News of Westpac's altered forecast comes just one week after NAB backtracked on its own cash rate expectations.

The business banking giant pulled its rate cut forecast from May to February in late September before pushing it back once more in the wake of the latest unemployment figures.

The unemployment rate remained at 4.10% in October, according to the Australian Bureau of Statistics.

Inflation and unemployment typically move in opposite directions – when one falls, the other rises.

With annual underlying inflation still half a percent above the top line of the RBA's 2% to 3% target in the September quarter, the jobs market is leaving room for doubt.

"There are only two more employment prints and one quarterly [Consumer Price Index print] before the [RBA board's] February 18 meeting," NAB's economics team said last week.

"Given the data flow to date, it now looks unlikely the RBA will have enough confidence in the trajectory of inflation by then."

Meanwhile, CommBank and ANZ are still predicting a February rate cut, but acknowledge the risk of a later start.

What 100 basis points of cash rate easing could mean for home loan borrowers

With housing affordability at its lowest in decades and interest rates at their highest since 2011, the environment remains tough for mortgage holders.

According to RBA assistant governor Christopher Kent, more borrowers are beginning to sell their homes in a bid for financial relief.

For those willing and able to hold on, significant relief could be on the way if Westpac's forecast proves accurate.

Right now, an owner-occupier holding a 30-year, average-sized new home loan – around $642,000 in September 2024 – with a typical new variable interest rate – 6.30% p.a. – could expect to pay around $3,975 a month in repayments.

If the RBA were to cut the cash rate by 100 basis points, and lenders were to pass all cuts on in full, that borrower could see their repayments reduced to $3,565 a month.

That would mark an annual difference of around $4,920.

_{Image by Sam Wilson on Wikimedia Commons}