Westpac boss says no rate cuts until May

Westpac boss Anthony Miller says borrowers will probably have to wait until May next year for interest rate relief as the Reserve Bank grapples with the twin challenges of higher inflation and rising unemployment alongside an acceleration in house prices.

The country’s second-largest mortgage lender delivered $6.9 billion in full-year profits on Monday after the latest shock inflation figure last week wiped out market expectations of further interest rate cuts this year, prompting some to predict a prolonged period of stability for Australian rates.

As the Reserve Bank board prepares to meet on Tuesday, when it is widely expected to leave the cash rate unchanged at 3.6 per cent, Miller said the RBA faced a “delicate balance” in managing the recent increases in unemployment and inflation.

While some banks believe Australians are at the low point for rates in this cycle of RBA moves, Westpac is betting further cuts are still warranted because policy is restrictive.

“We still think there’s another two rate cuts, but they’ll be in May and August of next year, just on the basis that, obviously, the Reserve Bank’s likely to want to see ... a bit more [evidence] that inflation is really landing where it needs to land,” Miller said.

Another key trend acknowledged by Miller was the brisk growth in house prices, which rose at their quickest pace in more than two years in October, pushed along by government help for first home buyers and past rate cuts.

Westpac forecast Sydney dwelling price growth would accelerate to 8 per cent in 2026, from 5 per cent this year. In Melbourne, where prices have risen more slowly in the past few years, Westpac forecast price growth of 10 per cent in 2026, up from 4 per cent in 2025.

Miller said an expanded government scheme to help first home buyers, which started on October 1, had fuelled strong demand from this cohort of buyers, and the bank was also keen to lend more money to property investors. Miller said Australia needed to build more homes that cost about $500,000 – though he acknowledged that doing this was complex and required action in areas such as supply chains, the cost of labour, and approval times.

“The key challenge of the day is we’ve got to get more houses built at the right price point,” Miller said.

He made the remarks after Westpac delivered a 1 per cent fall in full-year profits to $6.9 billion on Monday, while it also announced it was selling the RAMS home loan portfolio to a consortium – a move that will result in Westpac losing a chunk of the mortgage market.

Westpac’s deposits grew by 7 per cent and total loans rose 6 per cent, while its business lending jumped 15 per cent as banks competed fiercely to lend to small and medium enterprises.

Net interest margin – which compares funding costs with what banks charge for loans – rose 3 basis points in the September half compared with the same half last year.

Bad debts remained low, with charges for impaired loans falling to 5 basis points of its average loans, down from 7 basis points, as cost-of-living pressures eased. The bank raised its final dividend by 1¢ to 77¢ a share, which will be fully franked and paid on December 19.

Citi analyst Thomas Strong said the profit result was in line with market expectations, and it had been supported by ongoing improvement in the quality of its loans.

Westpac shares rallied 3 per cent, a bigger jump than rival banks.

The sale of the RAMS business – which is being bought by a group including non-bank lender Pepper Money, private equity giant KKR and money manager PIMCO – comes as Westpac embarks on a wider push to consolidate its technology systems.

Miller said the tech project known as “Unite” will result in all its loans being moved onto one system, and this would have required significant spending for the RAMS loan book. Selling RAMS allowed the bank to achieve its goals faster and more efficiently, Miller said.

“Essentially, I have 1 percentage point less market share, but now, instead of it being spread across three regional bank cost bases, it’s spread across two, and we’re on our way to getting one,” Miller said.

Despite a cost-cutting push, the bank had 35,263 full-time equivalent staff across the company, its annual report said, little changed from a year earlier.

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