‘Cautious and predictable’: Struggling homeowners tipped to wait for rate relief

Westpac says the Reserve Bank of Australia will keep rates on hold when they next meet in July, despite weak consumer spending and falling economic growth.

The big four bank has bucked money markets predictions, which are currently factoring in an 84 per cent chance of a rate cut in July, saying the RBA will be “cautious and predictable”.

Westpac chief economist Luci Ellis, a former assistant RBA governor, expects just two more rate cuts this year, coming in August and November, saying the market is getting ahead of itself.

“The (RBA) board described itself as having a preference to move cautiously and predictably,” she wrote in an economic note.

“This is 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.”

While homeowners may need to wait, Ms Ellis agrees with the majority of the market that interest rates eventually will fall below 3 per cent.

To get to this point, Ms Ellis expects rate cuts will come in February and May 2026, though the central bank might also move in December should more Australians lose their jobs.

According to the economist, the RBA will look to keep inflation under control over trying to give the economy a quick jump.

“Nothing that has happened since (the May meeting), including a disappointing GDP number, has been enough to tip the RBA into changing its mind in the near term,” Ms Ellis said.

NED-9175-Australia's GDP

These figures released earlier in the month, showed GDP growth for the March quarter came in at just 0.2 per cent, lower than market forecasts.

In May the RBA reduced Australia’s GDP forecasts for the 2025 calendar year from 2.4 per cent to 2.1 per cent.

But AMP deputy chief economist Diana Mousina disagrees, saying the weaker than expected GDP figures will see the Reserve Bank cut rates.

“The weakness in the March quarter GDP data pushed us to now expect another 0.25 per cent rate cut in July (as well as August, November and February 2026),” she previously wrote in an economic note.

“This is similar to market pricing at the moment.”

Commonwealth Bank senior economist Belinda Allen also believes there could be a rate cut in July, if economic data comes in lower than the RBA forecasts.

“The progression of consumer spending data will be a key focus for the RBA ahead of the 8 July rate decision,” she said.

“The balance of probabilities continues to shift towards a July rate cut (our base case remains August) but will depend on upcoming data flow including the May monthly CPI and labour market data.”

In a silver lining for households, Ms Ellis believes May’s jobs data coming out next week will show the current jobs market is tighter than the RBA’s view of full employment, meaning more Aussies will have a job.

Unemployment Figures

Ms Ellis said looking longer term, the case for multiple rate cuts is building as inflation shifts in the face of slower population growth and shakier private sector demand.

“Recent data has made it clear that population growth is unwinding a bit faster than previously thought,” she said.

“We have assessed that this is enough to have implications for housing costs, particularly rents.

“Over time, this puts a little more downside into measures of underlying inflation. We are also seeing a bit more downside in some parts of services inflation.”