Westpac changes its forecast to a February Reserve Bank of Australia interest rate cut

Westpac now expects the Reserve Bank of Australia (RBA) to begin cutting interest rates in February, following a softer-than-anticipated Q4 2024 inflation report. The bank argues that while monetary policy decisions typically rely on a broad range of data, this time, the Consumer Price Index (CPI) has been the decisive factor given mixed signals from other economic indicators.

With trimmed mean inflation at 0.5% for the quarter (3.2% year-on-year), Westpac believes there is now sufficient evidence to suggest disinflation has progressed faster than the RBA had anticipated. As a result, the central bank is expected to gain the confidence needed to initiate a rate-cutting cycle at its February meeting.

Westpac had initially forecast the first rate cut for May 2025 but maintained that an earlier move in February was a possibility. The stronger-than-expected decline in inflation has now tilted the balance of probabilities in favour of a February cut.

Beyond the next meeting, the bank expects the RBA to remain data-dependent and take a measured approach to further easing. Westpac’s baseline scenario now projects additional rate cuts in May, August, and November, bringing the cash rate down to 3.35% by year-end. This marks a return to Westpac’s earlier rate trajectory, as recent economic trends align with their initial forecasts, rather than the more hawkish stance on domestic cost pressures that previously suggested a prolonged period of restrictive policy.

Reserve Bank of Australia Governor Bullock

This article was written by Eamonn Sheridan at www.forexlive.com.