Westpac’s 1.35% interest rate call: ‘More to come’

·Personal Finance Editor
·2-min read
Hands remove Australian money from a wallet and the exterior of a Westpac branch
Westpac predicts a further 0.5 per cent interest rate hike next month. (Source: Getty)

The Reserve Bank of Australia (RBA) hiked rates 0.5 per cent this month and Westpac predicts another major move is coming.

Westpac chief economist Bill Evans said the bank was now expecting another 0.5 per cent hike on July 5, when the RBA next met.

“The RBA’s decision to lift the cash rate by 50 basis points at its June board meeting was a bit more than the market was expecting,” Evans said.

“We believe there’s more to come.”

Evans said the RBA had clearly signalled its concern about the challenges of containing inflation and that it was prepared to act decisively.

“We think the RBA will have to lift the rate by another 50 basis points in July,” he said.

“That would push the cash rate to 135 basis points, taking back the 75 basis points of cuts we saw in 2019 when the RBA was frustrated at the consistently low inflation prints.”

Evans said he then expected another hike in August, bringing the cash rate to 1.6 per cent.

“That's around a level I would call ‘neutral’”, he said.

“Above that, you move into contractionary territory and it’s likely the RBA will be a bit more cautious.”

RBA signals further hikes

RBA governor Philip Lowe warned Aussies this week that more interest rate hikes were on the way.

Speaking to the American Chamber of Commerce in Australia on Tuesday, Lowe said the bank was prepared to do whatever was necessary to bring down inflation.

“The board judged that, given the inflation data and outlook … it was no longer appropriate for interest rates in Australia to remain at the COVID-emergency levels,” he said.

“The board is committed to doing what is necessary to ensure that inflation returns to the 2-3 per cent target range over time.”

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