WESTPAC'S chief executive, Gail Kelly, believes the Reserve Bank will need to cut rates again early next year after a surprising deterioration in consumer confidence caught the market off guard.
Mrs Kelly also said the Australian dollar, which hit three-month high on Thursday, would continue to pressure the economy into the second half of next year.
"I think I would be in the same camp as most of the market and say there is likely to be further rate reduction in the new year, whether it's February or March," she said.
"The key driver of that is I think you've seen this in regards to consumer and business confidence."
On Wednesday the Westpac-Melbourne Institute survey showed that consumer confidence had fallen by 4.1 per cent.
Mrs Kelly said the dip in confidence had taken the market by surprise, particularly since the RBA had just cut the official cash rate by 25 basis points to 3 per cent - the lowest level since October 2009.
"We need a little bit more in the way of confidence building," she said.
The comments came just hours after the dollar hit US105.87¢ following a pledge by the US Federal Reserve to spend $US45 billion ($42 billion) a month on long-term bonds to stimulate its economy.
Westpac's head of institutional banking, Rob Whitfield, said the Fed's move would help keep the dollar at historically high levels.
"We'd all like to see the Australian dollar lower for our own economy, but at the moment the signs aren't there that it's about to lose that support."
Mrs Kelly was the second-highest-paid bank CEO behind ANZ's Mike Smith last financial year - she received total remuneration worth $9.6 million. At Westpac's annual meeting on Thursday, 9 per cent of shareholders voted against the remuneration report.
Westpac has the highest standard mortgage rates of the big four banks, and some shareholders questioned its decision not to pass on the latest 0.25 percentage point cut to the cash rate in full.
Westpac's chairman, Lindsay Maxsted, said changes in the cash rate were only one influence on its cost of funds, and passing on rate cuts in full would force other customers or shareholders to "subsidise" people with home loans.
When the bank decided whether to pass on Reserve Bank official changes to shareholders, it had to weigh up the competing interests of borrowers, savers and investors, he said.
"We look to see if we are to pass on 25 basis points ... then someone has to pay for that. And that person to pay for it will be the shareholder, or the person will be someone else in terms of all the depositors in this room," Mr Maxsted said.