On Thursday, the big bank announced it had delayed the expected start of its rate-cutting cycle from February to May. This correction follows recent minutes from the Reserve Bank which indicate that the balance of probabilities has shifted.

“Minutes of RBA board meetings often provide important color to the board’s deliberations, going beyond what is already covered in communications immediately after the meeting,” Westpac chief economist Lucy Ellis said.

“While post-meeting communication was still largely in line with our earlier expectations, subsequent public appearances and minutes now suggest that the balance of probabilities has shifted.”

Ellis pointed to the recent surge in consumer sentiment and continued resilience in the labor market as key factors that likely delayed the start of rate cuts.

According to Ellis, Westpac now expects the first cuts to be tentative, with successive reductions in late May and early July. The bank forecasts the terminal rate to reach 3.35 percent by the end of 2025.

However, Ellis admitted that an earlier start, in February or March, remains a possibility, although it is "no longer more likely than a May start date".

"The later start date is also a risky scenario if inflation doesn't ease as the RBA is currently projecting, let alone our own slightly lower expectations." However, the longer the RBA board waits, the quicker they will have to act afterwards, as then it will be more likely that they have hesitated for too long,” she said.

Ellis also noted signals from the central bank's communication that it was "more comfortable" with the later start built into market pricing. Current market expectations predict the first rate cut in August next year.

Earlier this month, RBA governor Michelle Bullock noted that while market expectations for gradual policy easing from mid-2025 may not correspond to the bank's official forecast, they largely reflect its outlook.

"We are not currently in a position where we can sustainably say that inflation will return to [target] group and we want to be more confident about that,” Bullock said.

"I think what the market reflects is that they understand that view and the risks are balanced."

What's more, Ellis expressed concern about the RBA's inflation forecasts on Thursday, suggesting their assumption of rising consumption as inflation eased was overly optimistic. She also questioned whether the RBA's estimate of full employment might be too hawkish.

Earlier this month, NAB became the first big four bank to set out its rate cut forecast until May 2025.

Amid the unemployment footprint - which revealed a steady rate of 4.1 percent in October with employment slowing to 16,000 - the NAB said May was the more likely scenario for the start of the rate-cutting cycle.

"Inflation data show some continued pressure on components sensitive to domestic demand and labor costs," the bank said at the time.

"Combined with the resilience evident in the latest labor market data, we think the RBA would have to worry about a sharper weakening in the labor market to decide to cut immediately in February, with May more likely." "

CBA isn't sure, but is sticking with the original forecast

Earlier this week, the CBA said minutes from the RBA had left the bank "uncertain" about the central bank's "response function to initiate the process of monetary rate normalisation".

However, the CBA said it would stick to its baseline scenario of a first rate cut of 25 basis points in February 2025.

"The board meeting in December 2024 it is not "live". As such, the risk to our call clearly lies in the later start of the easing cycle,” said Australia's chief economist Gareth Aird.

"In particular, we think the RBA will be more inclined to leave policy on hold for an extended period if the unemployment rate has not risen much over the next three to six months," Aird said.

Despite uncertainty over the timing of the first rate cut, CBA's base scenario for the cash rate expects a 100 bp. easing in 2025, with the year-end cash rate reaching 3.35 percent.

Aird said fiscal policy was the main source of uncertainty, especially with a federal election likely to be held in May next year.

"Fiscal easing would lead to less monetary easing, all else being equal," he said.