Summary: Cash rate expectations path slightly steeper through 2022; cash rate now expected to average 0.87 in December 2022; domestic data provides more weight for 2022 rate rises; one reduction to ADI cash rates in survey.
Expectations moved to reflect a slightly steeper path for the actual cash rate through the remainder of 2021 and into 2022 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 0.040% to 0.10% by April 2022 and then increase at a faster rate through to December 2022 where that month’s contract price implied an average rate of 0.87%. A week ago, the December 2022 contract’s price implied an average rate of 0.875%.
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 0.04%, 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 received as providing slightly more weight to the “rate rises in 2022” argument.
The Melbourne Institute’s November reading of its Inflation Gauge was released at the very start of the week. The index rose 0.3% over the month while the annual rate was maintained at 3.1%.
ANZ’s November Job Ads survey was released at about the same time. It reported another solid rise, almost identical in percentage terms to October’s rise. ANZ is expecting a “sharp rebound” in employment in the “near term “.
The next day, the RBA left its cash rate target unchanged at 0.10% and its bond purchase programme intact at the latest policy meeting on Tuesday. There was a change to the final paragraph of the statement and this led some economists to speculate the RBA may be giving itself some room to raise its cash rate target earlier than previously anticipated.
3 month BBSW is a useful benchmark for cash rates and it finished the week steady at 0.06%. Currently, the RBA’s target for the overnight lending rate between banks is 0.10% but actual overnight interbank loans are being negotiated at 0.04%, 4bps above the RBA’s exchange settlement account (ESA) rate for ADI deposits with it.
There was one change made by a deposit-taking institutions in our survey of cash account interest rates this week. ANZ trimmed its Progress Saver rate by 5bps.
CASH ACCOUNTS
| Product | Interest Rate p.a. | Special Conditions |
|---|---|---|
| AMP Saver Account | 0.01% | |
| 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 | 0.70% | 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 |