Sydney, Feb 3, 2026, 16:56 AEDT — Market closed
- Westpac closed Tuesday up 1.0% at A$39.32.
- Australia’s central bank raised its benchmark cash rate target to 3.85%.
- Attention now turns to mortgage repricing, credit stress, and Westpac’s first-quarter update due February 13.
Westpac shares climbed 1.03% to close at A$39.32 on Tuesday, edging ahead of other major Australian banks following the central bank’s rate hike. The stock fluctuated between A$39.14 and A$39.65, with around 2.46 million shares changing hands. The S&P/ASX 200 rose 0.89%. Commonwealth Bank of Australia gained 1.06%, National Australia Bank added 0.19%, and ANZ Group Holdings was up 0.08%. (Investing.com Australia)
With the cash market closed, traders face the usual dilemma for bank stocks: rising rates boost earnings on new and repriced loans, yet they also tighten borrowers’ belts and push up credit losses.
This matters now as rate expectations shift once more. In Australia, where mortgages make up the bulk of bank balance sheets, a repricing cycle can rapidly impact bank valuations. Deposit competition can also pivot abruptly.
The Reserve Bank of Australia raised its cash rate target by 25 basis points—each a hundredth of a percentage point—to 3.85%. The board noted inflation “picked up materially” in the second half of 2025, citing stronger private demand and a housing market still “picking up.” Labour conditions remain “a little tight,” the RBA said. The decision was unanimous. (Reserve Bank of Australia)
BetaShares chief economist David Bassanese said the RBA had “bared its teeth,” suggesting this could be a “one and done” hike for 2026. Governor Michele Bullock added she was “not predicting” more increases but didn’t rule out action if inflation remains stubborn. (ABC News)
Cherelle Murphy, chief economist at EY Oceania, described the move as unusual since it came just six months after a rate cut. She said, “the economy is running a little bit too hot,” according to remarks reported by the Australian Broadcasting Corporation. (AP News)
Banks first focus on margin. Net interest margin — the difference between earnings on loans and costs on deposits, measured as a share of assets — tends to widen if lending rates rise quicker than funding costs. Yet, competition usually squeezes that margin back down.
Investors will be watching how fast lenders adjust mortgage and deposit rates in the days ahead, along with whether the higher cash rate shifts the outlook on arrears and bad-debt costs.
Westpac plans to publish its first-quarter update on Feb. 13, with a call scheduled for 8 a.m., per its investor calendar. (Westpac)
The update will offer a fresh look at home-loan growth, deposit mix, and whether pricing changes are holding as customers explore options. Any change in credit quality — particularly in housing — could carry extra significance with the RBA pushing rates higher.
The downside is clear: if rates climb fast, credit demand could slump and mortgage stress might increase, pushing provisions higher and shifting attention back to bad debts instead of margins. A steeper slowdown would also challenge banks on how much of the rate hike they can pass on without ceding market share.
