RBA Holds at 4.35% But Westpac Is Pricing 2 More Hikes Before 2027

The Hold That Wasn't a Pivot

Westpac shares rose 1.2% on Tuesday after the RBA left the cash rate unchanged at 4.35%. That reaction deserves scrutiny, because Westpac's own economics team is the only major bank forecasting two more rate hikes before year-end.

The RBA's June decision was unanimous and widely expected. After three consecutive hikes in 2026 — wiping out all three cuts delivered last year — the board chose to pause and assess. Governor Michele Bullock was direct: "Today's hold is not an indicator the hiking cycle is over." The board will hike again "if required," and it was explicit that inflation "remains too high."

The relief reading is understandable on the surface. GDP grew just 0.3% in the March quarter. Unemployment rose to 4.5%, its highest since 2021. Auction clearance rates have fallen. Consumer spending is softening. All of that supports the argument that the prior three hikes are working — that the RBA can now wait.

The bottleneck in that argument is the trimmed mean. Headline inflation eased to 4.2% in April, but the RBA's preferred underlying measure — the trimmed mean — rose to 3.4%, up from 3.3% in March. That is the number the board actually watches. It moved in the wrong direction at the exact moment the board paused. The fuel excise cut ends June 30. Westpac's chief economist Luci Ellis is forecasting headline inflation peaks at 4.7% later in 2026, above the RBA's own projection.

So the question bank shareholders are navigating today is not whether the hold was the right call. It is whether the hold marks a pause inside a still-active hiking cycle — or a genuine peak. That distinction determines whether bank net interest margins hold, compress, or expand further.

Westpac vs the Consensus — and What the Market Is Actually Pricing

Three of the four major banks — ANZ, CBA, and NAB — have publicly forecast the cash rate has peaked and cuts will begin from mid-2027. Westpac sits alone in forecasting not just further hikes, but two of them: August and September, lifting the cash rate to levels not seen since 2011.

That split matters structurally. When Westpac's own economists forecast hikes, their bank's NIM calculations, provisioning, and credit risk models are built on a higher-for-longer rate path. ANZ, CBA, and NAB are implicitly underwriting a plateau. Both cannot be right. And the RBA's own statement — "the board will do what it considers necessary, including increasing the cash rate target further if required" — does not resolve the debate. It keeps both scenarios open.

Financial markets are not sitting with the consensus three. Rates markets are pricing a hike as more likely than not over the next 12 months. That divergence between the three big-bank economists calling a peak and markets pricing another hike is the live tension in every ASX bank position right now.

For holders of WBC or CBA: the relief-rally logic holds only if trimmed mean inflation begins to decline. If the July CPI print shows core inflation sticky at 3.4% or higher, the Westpac scenario activates — and bank stocks face a repricing that the 1.2% Tuesday gain does not yet price in. The counter-argument is real: the labour market is softening faster than the RBA expected, and a slowing economy may deliver the disinflation the board is waiting for without a further hike.

For watch-list investors: the entry question is not the hold itself but which forecast wins. Entering now on relief means accepting the consensus-peak assumption. That assumption requires the next trimmed mean print to confirm a downward trajectory — a specific, datable test.

The variable that actually decides this is not the RBA's next meeting. It is the July CPI release, which will show whether trimmed mean inflation reverses from 3.4% or remains elevated. If it holds or rises, KPMG's chief economist and Westpac are validated, and the "pause not pivot" thesis locks in. If it falls meaningfully toward 3.0%, the consensus three are correct and the rate cycle is over. Bank holders should be watching that number — not the RBA's rhetoric — before adjusting position.