Sydney, January 29, 2026, 17:37 AEDT — Trading after hours.
- Westpac (ASX:WBC) ended down 0.95% at A$38.50, with intraday moves ranging from A$38.25 to A$38.82. 1
- Australia’s consumer price index climbed 3.8% in the year ending December. Trimmed mean inflation, which excludes extreme price swings, registered 3.3%, according to the statistics bureau. 2
Shares of Westpac Banking Corp dipped Thursday after investors absorbed a stronger inflation report and adjusted their expectations for interest rates in the near term.
This is crucial now since big banks spent much of last year betting on an easing cycle. Recent data has swung the market’s view toward a potential rate hike, shifting how bank earnings are valued.
Higher rates tend to boost net interest margin — the gap between what banks earn on loans versus what they pay for funding. But they can also slow credit growth and increase pressure on the mortgage book, which drives Westpac and its competitors.
Australian shares closed slightly lower, dragged down by rate-sensitive financial stocks. Tim Waterer, chief market analyst at KCM Trade, said the prospect of tighter monetary conditions has clearly dampened sentiment on the ASX today. 3
Westpac senior economist Mantas Vanagas described the inflation figures as “on the firm side” in a morning note, highlighting a 0.9% increase in the trimmed-mean gauge over the quarter. He also noted the U.S. Federal Reserve’s decision to hold rates steady overnight, which kept a close eye on global yields. 4
Traders are focused less on this initial move and more on what follows. A modest rate hike that signals the end of inflation worries is one scenario; a renewed tightening cycle is quite another.
Lenders could benefit if higher rates push up margins without harming asset quality. But the risk is that rising borrowing costs lead to more delinquencies, shifting market focus from revenue to potential loan losses.
Interest-rate swaps, which reflect market bets on policy moves, now price in a 73% probability of a 25-basis-point hike at the Reserve Bank of Australia’s Feb. 3 meeting—up from 60% before the latest inflation data, Reuters reported. Economists say a 0.25 percentage point increase would push the cash rate to 3.85%. Cherelle Murphy, EY’s chief economist, noted that “Together with strong labour market data and capacity constraints, the case for tighter monetary policy is clear.” Adam Boyton, ANZ’s head of Australian economics, called the hike more of a one-off “insurance” move. 5
