Westpac doubles its rate cut forecast, as banks continue to cut fixed rates

Westpac’s economic team continues to expect two cash rate cuts this year, the first in August and then November, with a further two early next year, in February and May, bringing the cash rate to 2.85%.

However, Westpac has said the 2026 cuts could come slightly earlier, if inflation and the labour market ‘turn out weaker later in 2025’ than they expect.

Three of the big four banks expect the RBA to cut the cash rate to 3.60% at its August meeting, leaving rates on hold in July. NAB is the outlier here, predicting the next rate cut will come on 8 July.
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What impact could potential rate cuts have for variable borrowers?

A single 0.25 percentage point cash rate cut, if fully passed on by lenders, could reduce monthly repayments on a $600,000, 25-year mortgage by $90.

If Westpac’s forecast plays out, with four rate cuts through to mid-next year, homeowners could see a total drop of $349 a month.
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Source: www.canstar. Notes: based on owner-occupier paying principal and interest with 25 years remaining in July 2025 on the estimated RBA average variable rate of 5.80%. Assumes cash rates cut are in August, November, February and May and passed on in full the month after.

Fixed rates to fall further on back of rate cut expectations

Our database shows seven lenders are now offering fixed rates from 4.99% as banks plate up sub-5 per cent rates in a bid to get more borrowers to lock in.

While the majority of these deals are for owner-occupiers paying principal and interest, two banks – Australian Mutual and Police Bank – are also offering this sub-5% rate to investors.
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Source: Canstar. Notes: sorted in alphabetical order. Rates are for owner-occupiers paying principal and interest. Deposit size and other requirements apply. *2-year Australian Mutual rate is a first home buyer loan.

Rate cuts a huge relief for households under pressure

Canstar’s data insights director, Sally Tindall says, “If Westpac’s forecast comes to fruition and there are four more RBA cuts through to mid-next year, someone with a $600,000 loan could potentially see their monthly repayments drop by almost $350 a month.”

“This would be a huge relief for households under pressure, however, borrowers should remember this is a forecast, rather than a given.

“While the timing of the next cut is still up in the air, the prospect of at least one more is, at this stage, likely.
“The RBA won’t hesitate to act in July should global volatility ramp up, but the more likely scenario is that it will sit tight until after the June quarter CPI results, due out at the end of next month.

“Borrowers shouldn’t be banking on multiple rate cuts just yet, but they can start preparing by shopping around for a better deal, particularly if, as an owner-occupier, their variable rate starts with a ‘6’.

“Fixed rates continue to fall as lenders look to lock in more customers with rates starting with a ‘4’. With seven lenders now offering at least one fixed rate under 5 per cent, and the prospect of further cash rate cuts likely, we expect more banks to follow suit.”

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