This would take the Official Cash Rate to 4.25 per cent by the end of the year, meaning faster interest rate cuts.

And next year, Westpac expects to see just two 0.25 per cent cuts, taking the OCR to the assumed terminal rate of 3.75 per cent by mid-year.

A key driver behind Westpac’s changed view is strong signs the inflation profile will be more benign. The bank’s prediction for annual inflation in the third quarter of this year is 2.4 per cent, falling to 2.2 per cent in the fourth quarter.

Westpac’s chief economist, Kelly Eckhold, says yesterday’s Quarterly Survey of Business Opinion confirms near-term economic momentum is likely to remain in negative territory.

“While businesses are more confident of better times next year, we have some distance to travel before those become front of mind from a policy standpoint.”

Housing market data shows increased activity, but also depressed and still falling prices, indicating the housing market’s recovery is most likely a 2025 story, he says.

Global inflation

Another issue is the global interest rate cycle, which has decisively turned in recent months. Central banks have been responding to a global inflation shock and have generally responded in similar ways.

Eckhold says Westpac now finds the Reserve Bank is fitting well into the group of advanced economy central banks who have already eased their official cash rates significantly, and look set to ease more by the end of the first quarter next year.

“The Reserve Bank will need to reduce the degree of monetary policy restriction relatively quickly to keep pace with its peers. And now, with inflation projected to be close to target and the economy operating a fair margin below its productive capacity, there is a less obvious case for maintaining restrictive settings,” he says.

“We think the RBNZ Monetary Policy Committee will be asking itself ‘What are we waiting for?’ when considering the case for maintaining the OCR at what are reasonably tight levels.

“If the answer to that question is ‘not much’ then the path ahead seems clear, especially given the RBNZ has a long gap between meetings from November to February 2025.”