Westpac chief economist Luci Ellis maintains forecast for two more RBA rate hikes in 2026

Westpac chief economist Luci Ellis warns the Reserve Bank is still likely to hike interest rates this year given inflation remains too high.

Dr Ellis’ view about the RBA’s future rate trajectory is opposite to those of economists at HSBC and ANZ, who on Friday tipped the institution’s next move to be cuts. NAB economists earlier this week tipped cuts were the next likely move.

If correct, two more interest rate hikes would push the cash rate to 4.85 per cent — an 18-year high.

Dr Ellis, a former Reserve Bank assistant governor, said recent inflation and labour market data had been mixed, supporting the case for a hold next Tuesday.

But she expects two more hikes this year — in August and September.

“We still regard our two-hike track as the most appropriate base case view, given the inflation outlook,” Dr Ellis on Friday said.

She pointed to a number of factors that could keep inflation higher, including a “significant pass-through from higher fuel costs into some other prices” and the bigger-than-expected increase in award wages.

“If we are right about the inflation profile from here, the RBA will be surprised on the upside,” she said.

“We therefore retain our view that further rate hikes will occur in the following meetings (in August and September).”

The official cash rate now sits at 4.35 per cent after last month’s 0.25 percentage point rate hike that completed the reverse of the RBA’s three cuts in 2025.

The RBA next meets on Monday and Tuesday and the board is widely expected to hold interest rates to assess the impact of the energy price shock and significant monetary policy tightening.

The latest Australian Bureau of Statistics data showed yearly headline inflation fell to 4.2 per cent in March.

But trimmed mean inflation — which the RBA watches because it strips out volatile and seasonal items — rose to 3.4 per cent. Both of these figures are above the RBA’s 2-3 per cent target range.

Economists at HSBC and ANZ joined National Australia Bank in predicting the RBA would not move beyond its three rate rises this year and keep it on hold before cutting in 2026.

HSBC chief economist Paul Bloxham said the RBA had already taken significant action to deal with surging inflation and “critically, the action is working”.

“Growth has already slowed and there are strong indications in a range of timely measures that growth is set to weaken further yet,” he said on Friday.

“In addition to the shock from the RBA’s hikes, the economy has also been hit by the Middle East conflict shock and, more recently, the shock from the significant shifts in tax policy in the Federal Budget.”

Mr Bloxham said while there was some risk the RBA might choose to hike again after next week, he expected weakening growth to convince them to be on hold. He is tipping cuts to begin from the third quarter of next year.

Similarly, ANZ expects the RBA to leave the cash rate on hold next week and is now tipping two rate cuts in August and September 2027.

“Looking further ahead, with the broader signs of an economic slowdown and interest rates restrictive, rate cuts are likely to be the next sequence of rate moves,” ANZ head of Australian economics Adam Boyton said.

NAB chief economist Sally Auld this week tipped the RBA to leave rates on hold at its meetings next week and in August, comments widely seen to have sparked a sharemarket rally.

She then expects the central bank to start cutting rates in the second quarter of 2027, but the timing remains uncertain.