Summary: Cash rate expectations path slightly steeper; cash rate now expected to average 3.675% in May 2023; 3-month BBSW up 9bps; four increases to surveyed ADI cash rates.
Expectations moved to reflect a slightly steeper path for the actual cash rate through the remainder of 2022 and most of 2023 in comparison to its path at the end of the previous week. At the end of the week, contracts implied the cash rate would rise from the current rate of 1.31% to 1.82% in August and then increase to 2.265% by September. November contracts implied a 3.165% cash rate while May 2023 contracts implied 3.675%. A week ago, the May 2023 contract’s price implied an average rate of 3.53%.
Since March 2020, the RBA has not enforced its cash rate target by draining liquidity from the banking system. As a result, the actual cash rate has been noticeably below the target rate. As such, contract prices only reflect expectations of the average actual cash rate in a given month and not the implied likelihood of the RBA changing its target.
Notable economic data or events which have the potential to affect domestic interest rate expectations were thin on the ground.
The minutes of the RBA Board’s July meeting which were released on Tuesday. Again, there was nothing to surprise markets but they did state the current cash rate as “well below the lower range of estimates for the nominal neutral rate”.
Westpac and the Melbourne Institute released the June reading of their leading index a day later. The annualised growth rate fell again, with Westpac’s chief economist describing the result as “capturing the very early impact of central bank tightening cycles.”
At the end of the week, the July “flash” reading of S&P Global’s composite PMI decreased from 52.6 in June to 50.6. S&P Global Market Intelligence’s Laura Denman said, “Panellists suggested that interest rate increases, alongside persistent inflationary pressures, have been a pivotal factor contributing to the weakened private sector improvement this month.” A reading above 50 indicates an expansion in comparison to the previous month and the higher the reading, the greater the expansion.
3-month BBSW is a useful benchmark for cash rates and it finished the week 9bps higher at 2.24%. The RBA’s target for the overnight lending rate between banks is 1.35% but actual overnight interbank loans are still being negotiated at 1.31%, 4bps below the target but 6bps above the RBA’s exchange settlement account (ESA) rate for ADI deposits with it.
There were four increases made by deposit-taking institutions in our survey of cash account interest rates this week. Heritage Bank raised its Online Saver rate by 25bps, as did NAB with its Reward Saver rate and Westpac with its eSaver rate. Westpac increased its Life account rate by 50bps.
| Product | Interest Rate p.a. | Special Conditions |
|---|---|---|
| AMP Saver Account | 0.10% | |
| AMP Notice Account | 0.10% | |
| ANZ Premium | 0.15% | |
| ANZ Progress Saver | 1.15% | Minimum $10 deposit and no withdrawal per month |
| Arab Bank Online Savings | 1.00% | Minimum balance $500,000. |
| Bankwest Smart eSaver | 0.70% | On balances up to $500,000.99. No withdrawals per month |
| BOQ Fast Track Saver | 0.05% | Minimum monthly balance of $5000. |
| BoQ Bonus Interest Savings | 0.60% | Maximum 1 withdrawal per month. |
| CBA NetBank Saver | 0.35% | |
| CBA Goal Saver Account | 1.25% | On balances of $250,000 - $999,999. Minimum $200 deposit and no withdrawal per month. |
| Great Southern Bank | 1.20% | No maximum balance |
| Heritage Online Saver | 0.85% | Minimum balance $250,000 |
| ING Savings Accelerator | 1.70% | Minimum balance $150,000 |
| Macquarie CMA | 0.50% | Minimum balance $5000 |
| ME Online Savings | 1.60% | On balances up to$250,000. Make at least four tap & go purchases per month |
| NAB iSaver | 0.30% | |
| NAB Reward Saver | 1.25% | 1 deposit and no withdrawal per month |
| RAMS Saver Account | 0.40% | On balances $0 - $500,000. Minimum $200 deposit each month and no withdrawals |
| Suncorp Growth Saver | 2.00% | Minimum $200 deposit each month and no more than 1 withdrawal |
| UBank Save Account | 1.10% | Make 5 successful purchases using your Up or 2Up debit card or digital wallets in a month. |
| Up Saver Account | 1.85% | On a combined balance of upto $250,000. Minimum $200 deposit each month into Spend or Save accounts. |
| Westpac eSaver | 0.30% | |
| Westpac Reward Saver | 1.35% | Make a deposit to the account and ensure account balance is higher at the end of the month than the beginning. |