Westpac chief executive Anthony Miller warns rate rises could spark a recession, higher unemployment

Westpac’s chief executive Anthony Miller has warned higher interest rates could tip the economy into a recession, with Australia’s second biggest bank also concerned that more recent borrowers will struggle to keep pace with surging mortgage repayments as unemployment rises.

His bank is predicting three more rate hikes in 2026, starting on Tuesday, that would take the Reserve Bank of Australia cash rate to an 18-year high of 4.85 per cent, potentially curtailing business investment that creates jobs.

“That’s the worry in the context of potential recession,” Mr Miller told reporters during a conference call on Tuesday.

“At the moment, because of the uncertainty, the risk is that no decision today or a delayed decision today, is, in effect, a no investment opportunity and, as a result, activity will fall off in that forward setting of three, six, 12 months out.”

Three more rate hikes would also add $365 to monthly repayments on an average, new, owner-occupier mortgage of $736,000, which Westpac’s chief financial officer Nathan Goonan said was more likely to hit recent borrowers.

“Where we should be concerned is the sort of the obvious spots - we know that to lose money in mortgages, it’s in the tails,” he said.

“That will be people who are earlier into their home buying journey, they haven’t had the opportunity to build up the buffers and then they have a life event whether that be unemployment, an illness or something like that.”

The Iran war has already pushed annual inflation, for March, to a three-year high of 4.6 per cent and Westpac is forecasting unemployment, now at 4.3 per cent, hitting 5 per cent for the first time since late 2021 when Sydney and Melbourne were in COVID lockdown.

“Conflict in the Middle East is having a broad, economic impact that will test the resilience of economies, businesses and households,” Mr Miller said.

“We are now expecting a more pronounced slowdown in the Australian economy this year as energy supply pressures flow through to higher and more persistent inflation.

“Fuel supply constraints have begun to drive higher input costs for businesses and weigh on real household disposable income - this will create a more challenging environment for some customers.”

Loan applications had already fallen in April, following Reserve Bank interest rate rises in February and March, marking the steepest decline since the RBA’s last rate hiking cycle in 2023.

“There will be less growth just because customers are just going to sit by and sort of wait until that uncertainty clears,” Mr Miller said.

“I don’t think we’ll see a headlong rush of ongoing growth, because already people are just pausing and tempering what they might do.”

MST Financial senior banking analyst Brian Johnson noted Westpac had a higher housing mortgage loss rate than other banks.

“The only thing that really matters from an asset quality perspective really, in a crisis, is housing,” he told the conference call.

Westpac’s net cash profit fell by 1 per cent to $3.483 billion, when the six months to March 31 was compared with the six months to September 30 last year, including the first full month of the Iran war.

With major items included like last year’s sale of troubled mortgage business RAMS, Westpac’s net statutory profit for the first half of 2025-26 was 5 per cent weaker at $3.414 billion.

Westpac released its half-year results ahead of the Reserve Bank of Australia’s monetary policy board meeting, which is widely expected to decide on another 25-basis point increase that would take the cash rate up to 4.35 per cent for the first time since February 2025.

The proportion of loans where borrowers are 90 days or more in arrears fell to 0.64 per cent, down from 0.83 per cent a year earlier, during a period which covered three RBA rate cuts in 2025 but two increases, so far, in 2026.

Shareholders are getting a fully-franked dividend of 77 cents a share, accounting for company tax already paid.

Westpac shares were 1.1 per cent weaker at $38.08 at 1pm AEST during the first three hours of trade, which was worse than a broader 0.6 per cent drop on the Australian Securities Exchange.

A KPMG analysis of Australia’s big four banks showed a combined profit after tax of $15.2 billion, which was 2.1 per cent weaker compared with the first half of 2024-25.

“While the headline results remain resilient, the majors are positioning for a more challenging period ahead by focusing on strengthening balance sheets and staying close to customers as inflation and interest rate pressures continue to work through the economy,” it said.

A recession from higher interest rates last occurred in Australia in 1991, with the 2020 recession the product of COVID lockdowns and the summer bushfires.