Westpac's chief economist says converging data on housing, consumers, and oil prices cement the case for a rate pause
Westpac's chief economist, Luci Ellis, has grown more confident that the Reserve Bank of Australia's (RBA) November rate hike was its last – even as the central bank itself stops short of making that call.
In a weekly economic note published on 13 November 2026, Ellis said several weakening economic signals have hardened Westpac's view that the cash rate has peaked, pushing back on the RBA's more cautious public stance.
"Based on this revised forecast profile, an increase in the cash rate from here would be unlikely and – we would argue – undesirable," Ellis said.
Housing and consumers are cracking
The two pressure points Ellis flags most clearly are housing and consumer spending.
Mortgage loan inquiries dropped again in October after the September hike, with the full effect of the November increase not yet reflected in the numbers. Turnover and financing activity have come in below Westpac's earlier expectations, and the housing market has undershot forecasts for two consecutive months.
On the consumer side, households have shown resilience through this tightening cycle. Many borrowers were still sheltered on fixed-rate mortgages as rates began rising. Savings accumulated during the COVID years provided a buffer. Employment held strong, keeping income flowing even as costs rose.
But those buffers are now largely exhausted. Fixed-rate loans have rolled off. Savings cushions have thinned. And with two years of compounding rate hikes stacking up alongside persistently high fuel prices, the squeeze is beginning to show in spending behaviour.
What Westpac is now seeing, through its Card Tracker, is that discretionary services spending is turning lower in the December quarter too. Dining out, travel, entertainment are starting to give way.
Ellis was careful not to overstate this, but said it does suggest the risk of further consumer resilience is fading. Spending is not collapsing, but the tailwinds that sustained it are gone.
Business conditions have also softened following the November MPB meeting, with forward orders falling sharply in the latest surveys. Importantly, the data continues to show that current inflation is largely a non-labour cost shock – meaning it is not being fully passed through to consumer prices, which limits the case for further tightening.
Oil prices remove an inflation wildcard
One of the more striking elements of the note is what it says about oil. Westpac notes that dated Brent crude has fallen nearly a quarter since 28 October – the date the RBA locked in its forecasts – with spot Brent down around 15% over the same period.
That matters because oil prices feed directly into broader inflation expectations. A sharp fall removes one of the more unpredictable upside risks the RBA had been factoring in, and reduces the chance of a fresh wave of fuel-driven price increases hitting households.
Why the RBA isn't ready to call it
The RBA November forecasts were locked in on 28 October. Since then, oil prices have fallen sharply, business conditions have deteriorated, and consumer spending has softened further.
At the November Monetary Policy Board (MPB) meeting, governor Michele Bullock said it was a good time to "take stock" of the tightening cycle to date – language the market read as a signal for a December pause, not an all-clear on rates. The board itself was split, voting 6–3 to hold, with the minority more attentive to downside risks.
The RBA's own November statement is also explicit about why the majority voted to hike. The board cited "broadly based" domestic inflation pressures and flagged the increasing risk that higher inflation expectations become embedded – a central bank's way of saying that if people start expecting persistent inflation, it becomes self-fulfilling and far harder to reverse. The board also pointed to higher global energy prices stemming from the Middle East conflict as a live upside risk to the price outlook.
Crucially, Bullock was direct at the post-meeting press conference: the rate rise was not a response to global oil prices, which monetary policy cannot control. It was a response to domestic capacity pressures – the idea that Australia's economy is running too hot relative to what it can sustainably produce. Those pressures, in the board's view, pre-dated the oil shock and warranted action regardless of what was happening globally.
What's next? A February hike is unlikely, but not ruled out
Westpac's base case is that the cash rate stays on hold through 2027. But Ellis is explicit that a February hike cannot be entirely dismissed. The RBA's internal staff and senior officials remain sensitive to inflation risks and hold a cautious view of the economy's productive capacity.
For a hike to materialise, Ellis said, it would require "a material new inflation shock that has not yet occurred" – or what she described as a policy error, something Westpac does not forecast.
The unemployment rate, meanwhile, is now forecast to peak above 5% – a revision upward that reflects the broader softening Westpac expects through next year. GDP growth and the labour market have both been revised down for 2027, and underlying inflation is expected to fall more decisively within the RBA's 2–3% target band by the end of that year.
If Westpac is right, the rate environment ahead is one of stability, not further pressure. That changes the conversation with clients weighing fixed versus variable products, and it may ease some of the serviceability headwinds that have constrained borrowing capacity.
The RBA's December meeting will be the first real test of whether the board is prepared to signal what Westpac has already concluded: that this cycle is done.
