Summary: Cash rate expectations path slightly steeper through 2022, early 2023; cash rate now expected to average 1.025% in February 2023; domestic data again provides more weight for 2022 rate rises; two changes to ADI cash rates in survey.
Expectations moved to reflect a slightly steeper path for the actual cash rate through 2022 and into early 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 0.115% by April 2022 and then increase at a faster rate through to February 2023 where that month’s contract price implied an average rate of 1.025%. A week ago, the February 2023 contract’s price implied an average rate of 0.95%.
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 which had the potential to affect domestic interest rate expectations were again received as providing slightly more weight to the “rate rises in 2022” argument.
The Melbourne Institute’s December reading of its Inflation Gauge was released at the very start of the week. The index rose 0.2% over the month while the annual rate slowed from 3.1% to 2.8%.
November dwelling approval figures increased slightly more than expected but economists are generally pessimistic with respect to further rises in the short term.
The next day, November’s preliminary retail sales report indicated retail spending had increased by 7.3% over the month, again beating expectations.
Preliminary trade figures for November were released at the same time. They indicated Australia’s trade surplus declined from $10.8 billion after revisions in October to $9.4 billion. Exports increased by 1.6% to $43.8 billion while imports increased by 6.3% to $34.4 billion.
November housing finance numbers were released at the end of the week. Approvals in terms of numbers and value are still close to record levels.
3 month BBSW is a useful benchmark for cash rates and it finished the week steady at 0.07%. 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 two changes made by deposit-taking institutions in our survey of cash account interest rates this week. AMP Bank increased its Saver Account rate by 9bps while Up Bank cut it Saver Account rate by 20bps.
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 | 0.30% | 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 |