Westpac Drops Rate Hike Forecast After Softer CPI Data

June CPI came in below forecasts, and Westpac has now scrapped its call for two more rate hikes – here's what it means for borrowers.

The latest inflation figures have given Australian mortgage holders some welcome breathing room, with a weaker-than-expected June consumer price index (CPI) reading prompting Westpac to abandon its forecast for two more interest rate hikes this year.

The Australian Bureau of Statistics (ABS) reported that headline CPI rose 3.8 per cent in the 12 months to June 2026, easing from 4 per cent in May and coming in below both market expectations and the Reserve Bank of Australia's (RBA) own forecast. On a monthly basis, CPI edged down 0.1 per cent in June in both original and seasonally adjusted terms.

The trimmed mean — the RBA's preferred core inflation measure, which strips out large individual price swings — came in at 3.6 per cent over the year to June, unchanged from May but still sitting above the central bank's 2–3 per cent target band. ABS head of price statistics Rachael McCririck noted that once large individual price movements were stripped out, core inflation had effectively plateaued.

The strongest upward pressure in the June data came from housing, which climbed 6.8 per cent over the year. Food and non-alcoholic beverages rose 3.3 per cent, and recreation and culture also climbed 3.3 per cent.

What the Big Four Banks Are Now Saying

For borrowers, the most significant reaction came from Westpac. The bank had previously pencilled in two additional RBA cash rate hikes — in August and September — but has now abandoned that call entirely.

"We no longer expect rate hikes by the RBA this year. Inflation has been more benign than we feared and the RBA forecast," Westpac chief economist Luci Ellis said. Ellis noted that while higher energy costs had driven price pressure in the early phase of the Middle East conflict, the strong second-round effects Westpac had initially forecast had not materialised. "The substantial pass-through of higher energy costs seen in the early phase of the Middle East conflict has not been followed up in recent months," she said.

Westpac has not entirely closed the door on further tightening. "There is still a risk of a hike in November if inflation picks up again in Q3. But that is not our base case," Ellis said. The bank now expects the RBA to begin cutting rates from August 2027, a timeline it said was unchanged by the latest data.

ANZ, the Commonwealth Bank of Australia (CBA), and National Australia Bank (NAB) all responded more cautiously, each reaffirming that the cash rate will remain on hold at 4.35 per cent through 2026.

ANZ said the softer June trimmed mean print — 0.8 per cent for the quarter — should see the RBA hold rates steady at its August meeting. The bank's base case is for rates to remain at 4.35 per cent before easing 50 basis points in the second half of 2027. ANZ drew some comfort from limited second-round price effects and what it described as possibly peaking growth in housing-related costs.

CBA echoed that view, saying "today's data support our view that the RBA will remain on hold through the rest of 2026," adding that "today's softer result provides some reassurance that higher input costs are not passing through broadly and that inflation may be improving slightly faster than our forecasts."

NAB was the most cautious of the four, flagging that "the Q2 data feels a bit more dated than usual. Cost pressures have re-emerged over recent weeks." The bank continues to see geopolitical risks as a key threat, noting that "ongoing conflict in the Middle East remains a threat to inflation, inflation expectations and hence the policy rate outlook." NAB still expects the RBA to hold this year and ease from mid-2027.

As The Adviser reports, this shift represents the most significant recalibration of the major banks' rate outlook in months.

What This Means for Your Mortgage Repayments

The practical upshot for borrowers on variable-rate home loans is welcome clarity: the risk of further rate increases appears to be fading. All four major banks now hold an on-hold view as their base case through the end of 2026.

For borrowers who have been holding off on refinancing because they feared rates might climb further, this data points to a window of relative stability to act. Use our refinance savings calculator to estimate how much you could save by switching to a more competitive rate, and compare options across lenders on our cheapest home loans page.

It is also worth modelling what the forecast rate cuts could mean for your household budget. If ANZ, CBA and NAB are correct that rates will ease 50 basis points in the second half of 2027, use our repayment calculator to see what that reduction could mean in monthly dollar terms for your specific loan balance.

A few practical considerations heading into the second half of 2026:

**Variable-rate borrowers** should not become complacent. While further hikes are no longer the base case, Westpac has flagged a November hike remains possible if Q3 inflation data surprises to the upside. Maintaining a repayment buffer is still sound practice.

**Fixed-rate borrowers** rolling off their term may find the current environment more favourable for negotiating. With the rate outlook stabilising, lenders competing for refinancing business may sharpen their variable offers.

**First-home buyers** will still encounter serviceability assessments calculated at 3 per cent above the prevailing rate — but a stable rate outlook does reduce the risk of being stretched further by additional hikes.

Speaking with a qualified mortgage broker before making any decisions remains the most effective way to navigate what is still a complex lending environment. Rate forecasts shift quickly, and advice tailored to your circumstances will always outperform a one-size-fits-all approach.