Westpac predicts the Reserve Bank of Australia (RBA) will leave interest rates unchanged at its upcoming July meeting, despite sluggish consumer spending and declining economic growth.

Diverging from market expectations, which currently suggest an 84% chance of a rate cut, Westpac believes the RBA will take a “cautious and predictable” approach.

Westpac chief economist Luci Ellis, formerly an assistant governor at the RBA, anticipates only two more rate cuts this year, in August and November, arguing that financial markets are moving too quickly in pricing in further easing.

“The (RBA) board described itself as having a preference to move cautiously and predictably,” she wrote in an economic note,” she said.

“This is code for not wanting to do back-to-back cuts.

“It also made it clear in the minutes that this was about reducing restrictiveness, not moving quickly back to neutral in the style of the Federal Reserve last year,” she added

While homeowners may have to be patient, Ellis agrees with most of the market that interest rates will eventually dip below 3%, news.com.au reports.

She expects additional rate cuts in February and May 2026, though a move as early as December is possible if unemployment rises significantly.

Furthermore, Ellis underscored that the central bank is likely to prioritise controlling inflation over delivering a rapid economic boost.

“Nothing that has happened since (the May meeting), including a disappointing GDP number, has been enough to tip the RBA into changing its mind in the near term,” Ellis said.

Figures released earlier this month revealed that GDP growth for the March quarter was just 0.2%, falling short of market expectations.

In May, the RBA revised its 2025 GDP forecast downward, from 2.4% to 2.1%.

However, AMP deputy chief economist Diana Mousina holds a different view, arguing that the weaker-than-expected growth will prompt the RBA to cut interest rates.

“The weakness in the March quarter GDP data pushed us to now expect another 0.25% rate cut in July (as well as August, November and February 2026),” she wrote in an economic note.

“This is similar to market pricing at the moment.”

Moreover, over the longer term, Ellis said the argument for multiple rate cuts is gaining strength as inflation trends lower amid slower population growth and weaker private sector demand.

“Recent data has made it clear that population growth is unwinding a bit faster than previously thought,” she said.

“We have assessed that this is enough to have implications for housing costs, particularly rents.

“Over time, this puts a little more downside into measures of underlying inflation. We are also seeing a bit more downside in some parts of services inflation,” she concluded.