In late January 2025, Westpac's chief economist Luci Ellis brought forward the bank's forecast for the RBA's first rate cut — predicting February 2025 rather than May. She was right. Within weeks, the RBA cut for the first time since November 2020. What was behind the forecast shift, and what does the Westpac view on subsequent cuts mean for borrowers?
What Changed Westpac's Timeline
The ABS quarterly CPI released in late January was the catalyst. Trimmed mean inflation — the RBA's preferred measure, which strips out volatile items — came in at 3.2% for the year to December 2024. That's still above the 2–3% target band, but the trajectory was clearly downward and faster than the RBA's November forecast had assumed.
Critically, services inflation — the sticky part — also began moderating. New dwelling cost growth slowed to 4.2% annually, down from above 8% in 2022. Electricity prices actually fell in Q4 2024 thanks to government rebates. And Westpac's own Melbourne Institute consumer sentiment index climbed more than 10% in the December–January period, signalling households were beginning to anticipate relief.
That combination — faster disinflation, softening services costs, improving consumer expectations — was enough for Westpac to bring the forecast forward a quarter. ANZ and NAB followed within days. CBA had been the most dovish of the big four, forecasting February cuts since November 2024.
What Westpac Forecasts Next
As of February 2025, Westpac's house view was two additional 25bp cuts — one in May and one in August — bringing the cash rate to 3.60% by end-2025. That's not the most aggressive scenario among the big four (CBA had pencilled in three cuts), but it's the central case that most professional forecasters had clustered around.
At 3.60%, standard variable mortgage rates would sit around 5.4–5.6% for most lenders' flagship products. That compares with highs above 6.5% for some borrowers in mid-2023. The 100bp improvement in the cash rate over that period translates to roughly $430/month in lower repayments on a $750,000 loan — a significant change to household cash flow across south-west Sydney.
How Borrowers Should Position Themselves
If you're on a fixed rate expiring in 2025, this is the year to be strategic about your revert. A loan that was fixed at 2.1% in 2021 and reverts to a standard variable rate at 6.4% is a shock — but if that variable rate is likely to be 5.6% by August and 5.3% by December if further cuts materialise, rolling straight onto variable may actually be smarter than re-fixing now at 5.4% for 2 years.
It depends on your risk tolerance, your cashflow, and whether you think Westpac or CBA's more aggressive cut scenario will play out. That's the kind of conversation Michael has with clients across the Macarthur region every week. There isn't one right answer — but there's certainly a wrong one, which is letting your fixed rate expire and doing nothing while your lender reverts you to whatever rate they feel like charging.
Fixed rate expiring? Variable rate feeling high? Michael and the Mankin Finance team work across 30+ lenders to find you the right position for a falling rate environment. Call +61 420 699 983 or book a session below.
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