Westpac's move to lift mortgage rates all but guarantees a Reserve Bank rate cut in November, Macquarie Bank says.
Macquarie senior economist James McIntyre said he already expected a rate cut next month based on the labour market's deterioration in comparison to the RBA's August forecast.
"We anticipate (this) is likely to deliver a downgrade to the inflation outlook," he said.
"(And) the announcement by a major bank of an out-of-cycle 20 basis point rate hike - for investor and owner-occupier loans - all but seals the deal for a November rate cut front the RBA."
Westpac's owner occupier home loan variable rates will increase by 20 basis points to 5.68 per cent on November 20, when residential investment property loan rates will go up by the same amount to 5.95 per cent.
The rate hike means owner occupiers with a $300,000 loan will fork out an extra $46 a month in repayments.
Mr McIntyre says the move has been on the cards for several months so banks could recoup losses from regulatory measures requiring them to hold more capital.
He said other big lenders are likely to follow suit.
Lowering the cash rate to a fresh record low in November would be an easy decision for the RBA, given the risk of a higher Australian dollar, weakening population growth and potential further delay in the US Federal Reserve's rates liftoff, he said.
It also makes sense because macro prudential policy tools and a supply increase appear to be containing the property market.
Some market watchers believe consumer and property investor confidence will be hit if each of the big four banks hike owner occupier loans.
AMP Capital Investors chief economist Shane Oliver is tipping the RBA will cut its 2.0 per cent cash rate by 0.25 percentage points in November.
"The last thing the Australian economy needs right now is for home owners with a mortgage to see a decline in their discretionary spending power," he said.
However JP Morgan chief economist Stephen Walters said Westpac's move is not a game changer for the RBA.
"It's another moving part that tightens up financial conditions a little, but our base case is still that rates will be on hold until 2017," he said.
Commonwealth Bank is also sticking with its forecast of no change by the RBA until late 2016.
The RBA did not react when major lenders increased interest rates to investors and wound back discounts on home loans earlier in 2015, CBA chief economist Michael Blythe said.
"So it's not entirely clear that they'll be rushing in to offset the impact of what Westpac have just done," he said.
Prior to Westpac's rate hike, ANZ was forecasting a cash rate cut in February 2016 and again in May, while Westpac itself has forecast no change in 2016.
