Westpac has sharply upgraded its interest rate forecasts, warning of three further Reserve Bank hikes this year, and no relief until 2028.
Westpac now expects 25 basis point increases in May, June, and August, which would take the cash rate to 4.85% – the highest setting since the aftermath of the Global Financial Crisis. While the other major banks currently see only one more rise, Westpac’s call highlights the risk that the rate cycle still has some way to run.
Canstar.com.au’s data insights director, Sally Tindall, warned that “Borrowers could be in for a tough couple of years if Westpac’s forecast for three further hikes and no rate cuts til 2028 comes to pass.” She stressed that the scenario is “only a forecast, not a done deal”, but one borrowers should use as a prompt to strengthen their finances.
Explaining the shift in Westpac’s view, chief economist Luci Ellis (pictured) links the new outlook to a longer‑than‑expected disruption to fuel supply in the Middle East, and a faster pass‑through from higher fuel and oil‑related costs into broader prices. Even with a temporary halving of fuel excise, underlying inflation is still projected to remain elevated, with trimmed mean inflation hovering around 4% later this year.
The higher cash rate profile is expected to weigh on growth, slow household consumption, and soften the labour market, with unemployment forecast to peak near 5%. Ellis also suggests RBA could be reluctant to cut too soon after last year’s inflation rebound, favouring a “one bitten, twice shy” approach that keeps policy restrictive for longer.
For households, the implications of this more aggressive path are already being modelled.
Canstar’s analysis shows that if three more hikes land on top of this year’s earlier moves, a $600,000 owner‑occupier loan with 25 years remaining could face about $457 in extra monthly repayments by August. On a $1 million mortgage, repayments would rise by around $762 a month, adding thousands of dollars in annual costs.
“For borrowers, know that this is only a forecast, not a done deal, but use it as a warning to get your finances, particularly your mortgage, in the best position possible,” Tindall said.
She noted there are likely to be more than 40 lenders offering at least one variable rate under 5.75% after recent rises, meaning refinancing, or securing a sharper deal from an existing lender, could help offset some of the expected repayment shock.
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