Average mortgage holders could save almost $350 a month if the latest prediction by an influential economist at one of Australia's big four banks comes to fruition.
Luci Ellis, chief economist at Westpac and formerly the Reserve Bank, has added two cuts to her interest rate prediction for 2026.
On top of two 25 basis point cuts to the key lending rate in August and July in 2025, Ms Ellis predicts additional reductions by the central bank in February and May.
That would leave the cash rate at a terminal figure of 2.85 per cent, from the current rate of 3.85 per cent.
The additional cuts could come even earlier, potentially in December and February, if inflation and the labour market unfold even weaker than expected in late 2025, Ms Ellis said on Thursday.
Changes to the inflation outlook mean arguments in favour of more cuts in 2026 are building.
A faster-than-anticipated fall in immigration will ease rental costs, dragging down inflation, which Westpac now believes will drop below the midpoint of the RBA's 2-3 per cent target by the end of the year.
"We believe that would tip the RBA in favour of cutting the cash rate further," Ms Ellis said.
"Indeed, if we are right, the RBA might be in for a bit of an 'oh crikey!' moment late this year."
Australia's economy is at risk of a slower-than-expected recovery, as disappointing GDP growth figures in last week's national accounts revealed, amid a "shaky handover" from public to private spending.
"Consumer spending is tracking weakly, as we expected. We are now starting to see this weigh on business activity. The result is likely to be soggy growth and surprisingly weak wages growth despite apparently low unemployment," Ms Ellis said.
Household spending rose just 0.5 per cent in May, CommBank revealed in an insights index on Thursday.
Belinda Allen, senior economist at CBA, said the slower-than-expected spending recovery "could be the result of scarring from a loss of real household income post-COVID, and the impact of global uncertainty caused by trade tensions".
Consumption is expected to pick up in the second half of the year as more rate cuts boost households' disposable income.
Financial comparison site Canstar calculates the average mortgage holder with a $600,000 loan could have their repayments drop by $349 a month if Westpac's prediction bears out.
"This would be a huge relief for households under pressure, however, borrowers should remember this is a forecast, rather than a given," Canstar data insights director Sally Tindall said.
"While the timing of the next cut is still up in the air, the prospect of at least one more is, at this stage, likely."
CBA and ANZ predict just two more rate cuts, beginning in August, while NAB is the only big four bank betting on the RBA to cut rates at its next meeting in July. All up, NAB expects three more cuts to the cash rate.
Money markets assigned an 84 per cent chance of a July rate cut, with two more rate cuts priced in by early 2026.
