The Reserve Bank's interest rate should be cut in the new year to boost ailing consumer and business confidence, Westpac chief executive Gail Kelly says.
But the weak economic conditions are not having a financial impact on Westpac, she said.
"I think we need a little bit more in the way of confidence building in our overall market," Mrs Kelly told reporters after Westpac's annual general meeting on Thursday.
"There is likely to be further rate reduction in the new year, whether it's February or March."
Data released by Westpac earlier in the week showed a further drop in consumer confidence ahead of Christmas.
Business confidence has also slumped to its lowest level since April 2009, according to the latest National Australia Bank monthly business survey.
The Reserve Bank of Australia board is next scheduled to meet in February, after cutting the cash rate by 25 percentage points to three per cent in December.
Mrs Kelly said economic conditions would remain challenging in the year ahead, and highlighted the impact of the strong Australian dollar, which reached three-month highs on Thursday.
"Well it hurts our customers, no doubt about that," she said of the local currency.
"In the longer run one's got to think it's going to come down, but I can't see it in the short run."
But tough conditions are not hurting Westpac, with no increase in failures to meet loan repayments, Mrs Kelly said.
That may be a result of many customers focusing on paying off debts since the global financial crisis, chairman Lindsay Maxsted said.
"Anecdotally there are lots of businesses that are struggling," Mr Maxsted said.
"But I think what's happening is that there has been such good deleveraging over the last three or four years, so if they're struggling it's more impacting the owners in an equity sense than it is impacting us."
In an otherwise benign annual general meeting, several shareholders questioned the board about why Westpac had failed to pass on the RBA's latest 25 percentage point cash rate cut.
They were told decisions on rates took into account the impact on shareholders and deposit holders as well as the relatively smaller number of mortgage holders.
Mrs Kelly later dismissed any notion the big four banks were involved in collusion when setting variable home loan rates.
Westpac, Commonwealth and National Australia Bank all cut their rates by 20 percentage points after the RBA's most recent cash rate cut.
ANZ will decide on its move on Friday.
"Each bank is very clearly making its own decision," she told reporters.
"If you look at any period of announcements very often there are differences.
"This particular one happened to have major banks coming in with a similar number or the same number, but that's just circumstance."