Summary: Cash rate expectations path slightly steeper through 2022, first half 2023; cash rate now expected to average 3.535% in May 2023; two increases to surveyed ADI cash rates.
Expectations moved to reflect a slightly steeper path for the actual cash rate through 2022 and the first half 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 0.31% to 0.57% in June, rise to 0.955% in July and then increase to 1.38% by August. November contracts implied a 2.495% cash rate while May 2023 contracts implied 3.535%. A week ago, the May 2023 contract’s price implied an average rate of 3.18%.
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 provided a mix of positive and negative news.
The first major reports of the week was released on Tuesday. April’s private credit report indicated total lending increased by 0.8% over the month, more than expected and also up than March’s 0.6%.
April’s home approvals report was released at the same time. Approval numbers fell by 2.4% and “underlying conditions are weakening” according to Westpac.
Midweek, March quarter GDP figures came in as generally expected at 0.8% for the quarter and 3.3% for the year. Increased consumption was the main driver, while lower exports and higher imports were the main drags.
The Australian Industry Group’s (AiG) May reading of its Performance of Manufacturing Index was released on the same day. The index fell from 58.5 to 52.4, so still indicating an expansion, albeit at a slower pace. The higher the reading above 50, the greater the rate of expansion.
Preliminary trade figures for April were released on Thursday. They indicated Australia’s trade surplus increased from $9.7 billion after revisions in March to $10.5 billion. Exports rose by 1.0% to $50.4 billion while imports declined by 0.7% to $39.9 billion.
Home loan approval figures for April came out at the end of the week. Loan approvals fell by 6.4% in dollar terms and by 2.0% in terms of the number of approvals. Approvals for owner-occupier loans decreased by 7.3% in dollar terms while approvals for investors decreased by 4.8%.
3 month BBSW is a useful benchmark for cash rates and it finished the week 11bps higher at 1.24%. The RBA’s target for the overnight lending rate between banks is 0.35% but actual overnight interbank loans are still being negotiated at 0.31%, 4bps below the target but 6bps above the RBA’s exchange settlement account (ESA) rate for ADI deposits with it.
There were two changes made by deposit-taking institutions in our survey of cash account interest rates this week. Heritage Bank raised its Online Saver rate by 15bps and CUA raised its eSaver Flexi account rate by 25bps.
| Product | Interest Rate p.a. | Special Conditions |
|---|---|---|
| AMP Saver Account | 0.10% | |
| AMP Notice Account | 0.10% | Minimum 31 days notice |
| ANZ Premium | 0.15% | |
| ANZ Progress Saver | 0.40% | Minimum $10 deposit and no withdrawal per month |
| Arab Bank Online Savings | 0.75% | Minimum balance $500,000. |
| Bankwest Smart eSaver | 0.25% | On balances from $500,000 to $5,000,000. No withdrawal per month |
| BOQ Fast Track Saver | 0.05% | Minimum monthly balance of $5000. |
| BoQ Bonus Interest Savings | 0.25% | Maximum 1 withdrawal per month. |
| CBA NetBank Saver | 0.30% | |
| CBA Goal Saver Account | 0.25% | On balances of $250,000 - $999,999. Minimum $200 deposit and no withdrawal per month. |
| Great Southern Bank | 0.70% | No maximum balance |
| Heritage Online Saver | 0.40% | Minimum balance $250,000 |
| ING Savings Accelerator | 0.65% | Minimum balance $150,000 |
| Macquarie CMA | 0.00% | Minimum balance $5000 |
| ME Online Savings | 0.05% | |
| NAB iSaver | 0.05% | |
| NAB Reward Saver | 0.50% | 1 deposit and no withdrawal per month |
| RAMS Saver Account | 0.15% | On balances from $200 - $500,000. Minimum $200 deposit and no withdrawal per month |
| Suncorp Growth Saver | 0.60% | |
| UBank USaver | 0.50% | Limit $200,000. Minimum $200 deposit per month. |
| UBank USaver Ultra | 0.10% | Limit $200,000. Minimum $200 deposit per month. |
| Up Saver Account | 1.35% | Calculated daily, paid monthly once qualfied |
| Volt Bank | 1.15% | Limit $245,000 |
| Westpac eSaver | 0.05% | |
| Westpac Reward Saver | 0.50% | Minimum $50 deposit and no withdrawal per month |