THE head of Westpac 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.
Chief executive Gail Kelly also said Australia's dollar, which hit a 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," Mrs Kelly said.
On Wednesday, the Westpac-Melbourne Institute confidence survey showed that, despite the Reserve Bank's interest rate cut on December 5, 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 Reserve had just cut the official cash rate by 25 basis points to 3 per cent - the lowest level for the cash rate since October 2009.
"So I think we need a little bit more in the way of confidence building in our overall market," she said.
Her comments came just hours after Australia's currency hit $US105.87 - the highest in three months - following a pledge by the US Federal Reserve to spend $US45 billion ($A42.95 billion) each month on long-term bonds for the foreseeable future in a bid to stimulate its economy.
Westpac Institutional Bank group executive Rob Whitfield said that decision would help to keep the Australian 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," he said.
Mrs Kelly was the second-highest-paid bank chief executive - behind ANZ's Mike Smith - last financial year, receiving a total remuneration of $9.6 million. But shareholder disquiet on Thursday over her pay packet eased from last year.
Nine per cent of shareholders voted against Westpac's remuneration report at the annual meeting.
Westpac's cash earnings rose 5 per cent to $6.6 billion last financial year.
It 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 chairman Lindsay Maxsted said changes in the cash rate were only one influence on its cost of funds, and passing on official rate cuts in full would force other customers or shareholders to "subsidise" people with home loans.
He said that 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.
"We look to see if we are to pass on 25 basis points . . . then someone has to pay for that," Mr Maxsted said.
"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.
"Or it might be a business customer, so we have to subsidise a mortgage holder via a business customer."
Westpac, the Commonwealth Bank and NAB passed on 0.2 percentage points of last week's 0.25 percentage point reduction in official interest rates, blaming the increased cost of deposits.