Chief economist Luci Ellis said the latest RBA minutes and public appearances from board members "suggest that the balance of probabilities has shifted".
"The recent sharp increase in consumer sentiment ... and ongoing resilience in the labour market will have also tilted the balance of probabilities to waiting longer," she said.
However, Ms Ellis also predicts that, when rate cuts do come, the loosening cycle will happen faster than previously expected.
"We expect the initial moves to be somewhat front loaded, with consecutive cuts in late May and early July," she said.
"This is also a change from our previous expectation of a moderate pace of decline of one cut per quarter."
Westpac still predicts the official cash rate will be 3.35% by the end of 2025 – 100 basis points lower than its current level of 4.35%.
It has followed in the lead of NAB, which was the first of the big four banks to push its official prediction back to May.
As of 21 November, Commonwealth Bank and ANZ economists still expect the first rate cuts to come in February.
RBA's 'hawkish' view of economy
Ms Ellis said Westpac's revised outlook was influenced by language contained in minutes from the RBA board's November monetary policy meeting.
Board members said they had "minimal tolerance" for a more prolonged period of big price increases due to how long inflation has been above target already.
Even if inflation were to decline materially quicker than is forecast, the board would "need to observe more than one good quarterly inflation outcome to be confident such a decline was sustainable".
"This has been interpreted as saying the RBA needs to see at least two more quarterly CPI, and more importantly trimmed mean, outcomes from here before being confident," Ms Ellis said.
"This is almost certainly how the board and staff are thinking about the outlook.
"It suggests that they will wait for longer than we previously believed."
It's worth noting this prediction is just that – an attempt to guess what the RBA will actually do as opposed to what Westpac economists think should happen.
Ms Ellis said the RBA's view of the economy looks "somewhat more hawkish than we think is warranted."
"RBA forecasts hang crucially on a relatively bullish view of the potential for consumption growth to pick up as inflation declines and real incomes recover," she explained.
"Our own view incorporates a more modest recovery, noting the relatively subdued response so far to the income boost from the State 3 tax cuts."
Delicate balancing act
If you're struggling with your mortgage repayments, this is probably pretty unwelcome news.
The cash rate has remained at 4.35% for more than a year now, taking its toll on the finances of many households.
But the RBA is resolute that it will do what is necessary to get inflation under control.
"Price pressures [are] what's keeping pressure on households," RBA governor Michele Bullock told media after the board's November monetary policy decision.
She acknowledged the "good progress" that has been made so far, but said the "last part of the job of getting inflation down" won't be easy.
The RBA's job is now to keep bringing inflation down without crashing the economy – the "narrow path" that previous governor Phil Lowe spoke about.
In the most recent Statement on Monetary Policy, the RBA acknowledged that while public demand remains strong, private demand growth has been weak.
This might be necessary to fix up the imbalance between supply and demand which contributes to price increases, but Ms Ellis says it may take time for household spending to recover.
"Australia could end up with an extended period of lacklustre growth," she said.
Picture by Scancode Productions on Unsplash
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