‘No shoo-in’: Westpac cautions homeowners on July rate cut, warns inflation figures ‘still likely to print on high side’

One of Australia’s big four banks is cautioning mortgage holders rates might stay on hold in July, despite a weaker-than-expected inflation read.

One of Australia’s big four banks has forecast the Reserve Bank is more likely to move on rates in July – but cautioned this is not the “shoo-in” everyone thinks.

Westpac chief economist Luci Ellis says Wednesday’s softer-than-expected inflation reading is adding to the case for rate relief and is expecting the central bank to move in July instead of August, but she is not prepared to say it is locked in.

“The June quarterly inflation numbers are still likely to print on the high side, so some caution on the inflation outlook is likely and warranted,” she wrote in an economic note.

“One month’s data ordinarily wouldn’t – and shouldn’t – determine the RBA’s forecast and decision-making.”

Westpac is saying a rate cut in July is not a “shoo-in”. Picture: NewsWire

Currently the money market is counting on around an 89 per cent chance of a rate cut in July based on weak CPI data released for May.

Ms Ellis said a high inflation read is not the only issue mortgage holder and investors wanting a rate cut will have to contend with, as the RBA will also need to change its current stance on rates.

“Moving more quickly than the ‘cautious and predictable’ path flagged in May implies that the RBA’s forecasts need to shift,” she said.

“We expect that the inflation evidence will overtake the RBA’s thesis of domestic tightness over time.

“But we do not think they are going to start singing from an entirely different song sheet just yet.”

Despite raising concerns, Ms Ellis is still calling four rate cuts between now and May next year.

This would take the current cash rate, which is at 3.85 per cent, to be cut to 2.85 per cent by this time next year.

If Westpac’s prediction is correct, it would mean households get six rate cuts in total from the start of the rate cutting cycle, when interest rates were at 4.30 per cent.

Wednesday’s consumer price index rose by 2.1 per cent for the 12 months to May 2025, beating expectations of 2.3 per cent.

The all-important trimmed mean inflation rate, which the Reserve Bank considers when making decisions about the cash rate, came in at 2.4 per cent.

This is the lowest level since November 2021.

Wednesday’s consumer price index rose by 2.1 per cent for the 12 months to May 2025, beating expectations of 2.3 per cent. Picture: NewsWire / Nicholas Eagar

Off the back of these weaker than expected figures, Commonwealth Bank senior economist Belinda Allen has now updated her rate call, saying interest rates will be slashed in July.

“Based on the data flow we now expect the RBA to cut the cash rate in July,” she said. “Today’s monthly CPI print capped off a flow of data that should provide comfort to the RBA that a swifter return of the cash rate to neutral is both manageable and needed,” Ms Allen said.

Ms Ellis said despite the better than expected inflation read, the central bank is still looking at a number of factors which will determine its decision.

“The RBA’s outlook is still shaped by concerns about the tight labour market, slow economy-wide productivity growth and the pricing implications of recovering demand,” she said.

“Thus we expect noncommittal, even grudging, language in the post-meeting communication.”

Originally published as ‘No shoo-in’: Westpac cautions homeowners on July rate cut, warns inflation figures ‘still likely to print on high side’