Summary: Cash rate expectations path steeper; cash rate now expected to average 3.575% in May 2023; RBA raises cash rate target by 25bps; no changes to surveyed ADI cash rates.
Expectations moved to reflect a 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 0.61% in June and then increase to 1.555% by August. November contracts implied a 2.79% cash rate while May 2023 contracts implied 3.575%. A week ago, the May 2023 contract’s price implied an average rate of 3.17%.
Since March 2020, the RBA has not enforced its cash rate target by draining liquidity from the banking system via changes in the total of ESA balances. As a result, the actual cash rate has been noticeably below the target rate, even after the RBA increased this target to 0.35%. As such, contract prices only reflect expectations of the average actual cash rate in a given month and not some estimate of the likelihood of the RBA changing its target.
Notable economic data or events which had the potential to affect domestic interest rate expectations came thick and fast through the week. However, they were generally overshadowed by the RBA Board meeting on Tuesday.
ANZ’s April Job Ads survey was released at the very start of the week. It reported a modest dip, leaving total advertisements at a historically high level. ANZ expects “solid employment gains in the coming months.”
The Melbourne Institute’s April reading of its Inflation Gauge was also released. The index slipped 0.1% over the month while the annual rate slowed from 4.0% to 3.4%.
The RBA Board met for its May meeting the next day. As widely expected, it increased its cash rate target and the rate paid on exchange settlement balances both by 25bps. Additionally, the RBA’s holding of bonds would be allowed to mature without re-investment, thus reducing its balance sheet and the monetary base.
Midweek, March preliminary retail sales report indicated retail spending had increased by 1.6% over the month, exceeding expectations of a 0.5% rise. Sales increased by 9.4% over the year, up from February’s 9.1%.
Home loan approval figures for March came out at the same time. Loan approvals increased by 1.6% in dollar terms but fell by 4.7% in terms of the number of approvals. Approvals for owner-occupier loans increased by 0.9% while approvals for investors increased by 2.9%.
March’s home approvals report was released a day later. Approvals fell by 18.5% in terms of numbers, partially reversing February’s 42% jump.
Preliminary trade figures for March were also released on Thursday. They indicated Australia’s trade surplus increased from $7.4 billion after revisions in February to $9.3 billion. Exports were effectively stable at $49.5 billion while imports decreased by 4.6% to $40.1 billion.
At the end of the week, the May Statement on Monetary Policy provided an update to the RBA’s various forecasts for GDP growth, inflation and unemployment rates. The changes were flagged earlier in the week after the RBA meeting and they were not particularly surprising.
3 month BBSW is a useful benchmark for cash rates and it finished the week 21bps higher at 0.92%. The RBA’s target for the overnight lending rate between banks increased by 25bps to 0.35% but actual overnight interbank loans are still being negotiated at 0.31%, 6bps above the RBA’s exchange settlement account (ESA) rate for ADI deposits with it.
There were no changes made by deposit-taking institutions in our survey of cash account interest rates this week.
| 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 | 0.15% | Minimum $10 deposit and no withdrawal per month |
| Arab Bank Online Savings | 0.50% | 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 | 0.05% | |
| CBA Goal Saver Account | 0.25% | On balances of $250,000 - $999,999. Minimum $200 deposit and no withdrawal per month. |
| Great Southern Bank | 0.45% | No maximum balance |
| Heritage Online Saver | 0.25% | 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 | 0.25% | 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 | 0.05% | |
| UBank USaver | 0.50% | Limit $200,000. Minimum $200 deposit per month. |
| UBank USaver Ultra | 0.05% | Limit $200,000. Minimum $200 deposit per month. |
| Up Saver Account | 1.05% | Calculated daily, paid monthly once qualfied |
| Volt Bank | 0.90% | Limit $245,000 |
| Westpac eSaver | 0.05% | |
| Westpac Reward Saver | 0.15% | Minimum $50 deposit and no withdrawal per month |
| 86400 Save account | 1.20% | On balances upto $50,000 |