Summary: Cash rate expectations path flatter through 2022, first half of 2023; cash rate now expected to average 1.36% in February 2023; week’s data generally not unusual enough to produce notable changes in cash rate expectations; no changes to ADI cash rates in survey.
Expectations moved to reflect a flatter 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 slowly from the current rate of 0.050% to 0.10% by May and then increase to 0.47% by August. November contracts implied a 1.01% rate while February 2023 contracts implied 1.36%. A week ago, the February 2023 contract’s price implied an average rate of 1.40%.
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, currently at 0.05%, has been noticeably below the target rate, even after the RBA reduced this target to 0.10%. 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.
Economic data or events of the week which had the potential to affect domestic interest rate expectations were not sufficiently unusual to do anything other than modestly adjust the expected path of the cash rate.
At the start of the week, January’s preliminary retail sales report indicated retail spending had increased by 1.8% over the month, exceeding expectations of a 0.4% rise. Sales increased by 6.4% over the year.
Tuesday was a busy day.
The Melbourne Institute’s February reading of its Inflation Gauge was released. The index rose 0.5% over the month and the annual rate increased from 3.0% to 3.5%.
January’s private credit report indicated total lending increased by 0.6% over the month, taking the annual growth rate from 7.2% to 7.6%, the highest since November 2008.
January home loan approval figures also came out and the increase beat expectations, hitting a new high. Economists are still betting on some softening shortly.
In the afternoon, the RBA left its cash rate target unchanged at 0.10%. There was nothing new except a tweak in the Governor’s language with regards to wages and labour costs.
Midweek, the December quarter GDP figures produced a better than expected result. The figures were described by one senior economist as evidence Australian “households and businesses are continuing to adapt to the challenges of the pandemic.”
A day later, January home approvals dropped in contrast the modest increase which had been generally expected.
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3 month BBSW is a useful benchmark for cash rates and it finished the week 4bps higher at 0.12%. Currently, the RBA’s target for the overnight lending rate between banks is 0.10% but actual overnight interbank loans are being negotiated at 0.05%, 5bps 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.
CASH ACCOUNTS
| 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 | 0.20% | 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 | 0.35% | 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 |