The nation’s second-largest lender believes the Reserve Bank will push back its first interest rate cut until May – but it will start with a bang.

Westpac chief economist, and former RBA assistant governor Luci Ellis – who had believed the RBA would start cuts in February – said this morning that it was now likely to start in May and follow that up with another rate cut at its next meeting in early July.

By the end of next year, Westpac is tipping the cash rate to be at 3.35 per cent. On a 30-year, $600,000 mortgages, a cut of this size would reduce monthly repayments by almost $400.

Ellis said a combination of the strong jobs market, and signs the bank wanted to see consecutive quarterly falls in underlying inflation, meant a later start to the bank’s rate-cutting plans was now likely.

“We have revised our view of the most likely scenario for the path of the RBA’s cash rate, pushing out the start date of the rate-cutting cycle from February to May,” she said.

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“Similar to the pattern in some peer economies, we expect the initial moves to be somewhat front-loaded, with consecutive cuts in late May and early July.”

Ellis cautioned that if the bank pushed back rate cuts, the more likely they would be larger because the economy would be struggling.

“The longer the RBA board waits, the faster they will need to move thereafter, as it would then be more likely that they have hesitated too long,” she said.

According to Ellis, the bank – like central banks in other countries – might have to change direction quickly.

New Zealand’s central bank had as recently as May signalled rates would be on hold for the rest of 2024. It started cutting rates in August with the country now in a nearly 15-month-long recession.