The central bank is likely to cut its interest rate again after Christmas, Westpac chief executive Gail Kelly says.
"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 told reporters on Thursday.
"The key driver of that is what you see in regard to business and consumer confidence."
Consumer confidence has fallen in recent weeks, according to a monthly index compiled by Westpac and the Melbourne Institute that was released on Wednesday.
The fall came a day after National Australia Bank's (NAB) monthly business survey showed business confidence had slumped to its lowest level since April 2009.
"I think we need a little bit more in the way of confidence building in our overall market," Mrs Kelly said on Thursday after Westpac's annual general meeting.
The Reserve Bank of Australia board is next scheduled to meet in February, after it cut its cash rate by a quarter of a percentage point to three per cent on December 4.
Three of the big four banks, including Westpac, passed on 20 percentage points of that cut, with ANZ to review their rate on Friday, which Mrs Kelly defended on Thursday.
Westpac needed to weigh up the interests of shareholders, deposit holders and borrowers when setting its rates, Mrs Kelly said.
Funding costs remain high, mainly due to the cost of attracting deposits in an environment where consumers are paying off debts rather than taking new loans, Mrs Kelly said.
"Retail deposit holders have benefited significantly through attractive rates, but that has remained a source of additional funding pressure for us," she said.