Australia's Inflation Rate Remains Stubborn: RBA Rate Cuts Unlikely Until Late 2027

The Inflation Headwind Keeps Central Bank on Hold

Core inflation in Australia has climbed back above the Reserve Bank of Australia’s comfort zone of 2%-3% in the latter half of 2026, creating a persistent challenge for policymakers. This resurgence in price pressures has fundamentally reshaped expectations around when relief might come for borrowers. Westpac’s economic team has substantially shifted its outlook, now anticipating that the RBA will maintain its current policy stance throughout 2026 and into the early months of 2027.

What Westpac’s Latest Forecast Reveals

The institution’s chief economist Luci Ellis emphasized that widespread inflationary headwinds—particularly those emerging in late December or early 2026—could further complicate the central bank’s decision-making process. According to Westpac’s revised projection, the path forward involves holding rates steady for an extended window, with potential easing movements only materializing in early-to-mid 2027. This contrasts sharply with the approximately 75 basis points of cuts delivered during the prior year.

Australia’s Inflation Rate and Labor Market Dynamics

While broader inflation metrics are expected to gradually moderate and eventually return to target, the timeline remains uncertain. RBA Governor Michele Bullock has underscored concerns that any premature easing could reignite price pressures. Simultaneously, tightening labor market conditions could prompt the central bank to recalibrate its strategy entirely. The institution faces a delicate balancing act: controlling inflation while preserving employment growth and short-term economic momentum.

What This Means for Markets and Borrowers

Westpac’s analysis suggests that absent a significant shift in the inflation trajectory across Australia, substantial policy modifications remain unlikely in the near term. However, Ellis noted that sustained tightening measures could themselves become counterproductive, potentially necessitating a reversal of such stance by 2027 to support economic activity and labor market health.