Summary: Cash rate expectations path slightly flatter; cash rate now expected to average 0.875 in December 2022; domestic data provides less weight for 2022 rate rises; two reductions to ADI cash rates in survey.
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.
Expectations moved to reflect a slightly flatter 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 0.075% 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 0.875%. A week ago, the December 2022 contract’s price implied an average rate of 0.91%.
The RBA can change the overnight cash rate target on any day of its choosing and it has done so on occasion in the past. However, past changes have typically been announced on the day of its Board meeting. Changes have been made much more frequently in the months of February, May, August and November.
Economic data or events which had the potential to affect domestic interest rate expectations were received as providing slightly less weight to the “rate rises in 2022” argument.
The first notable reports of the week was released on Tuesday. Private credit increased by 0.5% in October, taking the annual growth rate from 5.3% to 5.7%, the highest since August 2016. October dwelling approval figures dropped by more than expected as the unwinding of the HomeBuilder scheme continued.
The September quarter’s GDP figures came out the next day. The contraction was not as large as forecast and with a historically-high savings rate, economists generally expect a solid bounce in the December quarter.
On Thursday, October housing finance numbers declined, apparently dragged down by the “lockdown” states.
Preliminary trade figures for October were released on the same day. They indicated Australia’s trade surplus declined from $11.8 billion after revisions in September to $11.2 billion. Exports and imports both decreased by 3% to $45.1 billion and $31.8 billion respectively.
3 month BBSW is a useful benchmark for cash rates and it finished the week 1bp higher 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 were two changes made by deposit-taking institutions in our survey of cash account interest rates this week. ANZ lowered its Premium rate by 10bps, as did the Bank of Queensland with its Bonus Savings rate.
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 | 0.25% | 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 |