iscover 
Westpac Banking Corporation (Westpac) has revised its cash rate trajectory forecasts, adding in two additional rate hikes this year.
While the major bank had expected the Reserve Bank of Australia (RBA) to lift the cash rate again in May, it has now added in another two 25-basis-point hikes this year - for the June and August 2026 rate decisions - marking five consecutive cash rate hikes.
As such, this will take the peak cash rate to 4.85 per cent - the highest level since the global financial crisis. The last time the cash rate was higher than this was in November 2008, when it was 5.25 per cent.
The revisions come as the Middle Eastern conflict continues to rage, resulting in the prolonged closure of the Strait of Hormuz and other supply disruptions in the Middle East, impacting global supply chains for fuel.
In an economic update on Monday (30 March), Westpac’s chief economist Luci Ellis wrote: “This shift reflects the longer disruption to and slower recovery in fuel supply assumed in the revised baseline forecasts we first published on Friday afternoon, with the Strait of Hormuz essentially closed for eight weeks and traffic recovering only slowly after that.
“It also reflects the surprisingly rapid pass-through of higher fuel and other oil-derived product prices into other prices in Australia.
“We believe the RBA will respond to this pricing behaviour by tightening monetary policy by more than would have been needed absent that pass-through.”
She also noted that the halving of fuel excise, announced by national cabinet today, reduces the near-term outlook for headline CPI inflation. Nevertheless, she said a peak of 5.4 per cent in the June quarter remained “likely” - with trimmed mean inflation expected to peak around 4 per cent later this year.
Ellis said: “The higher cash rate profile will weigh on Australia’s economic outlook. Growth will be slower, especially consumption, and the labour market will be softer.
“We expect unemployment to peak around 5 per cent, somewhat higher than the 4.7 per cent peak we flagged last week. Headline inflation will dip below 2½ per cent by mid-2027 and will remain in the lower half of the 2–3 per cent target range through to 2028.
“Trimmed mean inflation will take a little longer to decline, but will be back in the target range in 2028.”
Rate cuts will take longer
Moreover, Westpac’s chief economist has said that the rate-easing cycle will also take place later than originally expected.
“We think the RBA will be slow to reverse this policy tightening and risks getting behind the curve in coming years.
“We push out the date for rate cuts and pencil in four rate cuts, one per quarter in February, May, August and November 2028,” she said, but added that the bank had “low conviction” about the exact timing.
"A supply shock such as the one the world is now facing should ordinarily be looked through to the extent possible, so long as longer-term inflation expectations remain anchored," Elllis explained.
"Because it believes Australia is starting from a position of little spare capacity, though, the RBA sees the supply shocks as a potential reason to have both a restrictive stance of policy and to revise up its view of what constitutes restrictive policy."
Ellis conceded that there were risks on both sides of its baseline view - for example, if the fuel supply recovers faster, or drags on longer, than currently assumed.
Westpac's cash rate forecast change comes just days after the Commonwealth Bank of Australia (CBA) warned that the RBA could raise the cash rate beyond an already‑expected May move.
In its latest update, CBA rewrote its central predictions around a protracted war and ongoing disruption through the Strait of Hormuz.
As reported by The Adviser, CBA expects a finely balanced decision at the RBA’s 4–5 May meeting but still forecasts a quarter-point rate hike, warning further increases beyond May are possible if inflation pressures persist.
It said a fourth hike in 2026 could be triggered by expansionary budget measures, stronger wage growth, or resilient consumer spending, with rate cuts not expected until 2027.
Ahead of Westpac's revision, all four major banks had been forecasting just one additional hike in May following the March rate decision.
This would have brought the cash rate to a new peak of 4.35 per cent this cycle.
Given the changing rate environment, brokers - including Melanie Smith and Luke Camilleri - have told Broker Daily they are actively moving clients toward "rate locks" and split-loan structures to provide "peace of mind" against the changing economic scenarios being forecast.
[Related: Spotlight: What the Iran strikes could mean for Australia’s economy]
Want to see more stories from trusted news sources?Make Broker Daily a preferred news source on Google.