Summary: Cash rate expectations path again steeper; cash rate now expected to hit 0.38% by December 2022; week’s domestic economic reports not exactly on positive side; two changes 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 0.03%, 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 again moved to reflect a 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 but steadily from the current rate of 0.030% to 0.10% by June 2022 and then increase at a somewhat faster rate through to December 2022 where that month’s contract price implied a rate of 0.38%. A week ago, the December 2022 contract’s price implied a rate of 0.32%.
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 not exactly on the positive side this week. However, expectations of higher cash rates firmed again.
On Tuesday, NAB’s September business survey posted a rise in its confidence index but a fall in its conditions index. In a poor sign for employment, NAB’s measure of capacity utilisation sank further below 80%.
A day later, the Westpac-Melbourne Institute’s latest reading of their consumer sentiment index declined but remained above the long-term average, leading Westpac’s chief economist to describe consumers as still “relatively upbeat”.
On Thursday, September’s Labour Force report largely met economists’ expectations with respect to a fall in total employment, just as it had in August. The participation rate again prove to be the wildcard and the jobless rate only ticked up 0.1 percentage points to 4.6%.
The Melbourne Institute’s October reading of inflation expectations over the coming 12 months came in at 3.6%, down from 4.4% in September.
3 month BBSW is a useful benchmark for cash rates and it finished the week 1bp higher at 0.03%. Currently, the RBA’s target for the overnight lending rate between banks is 0.10% but actual overnight interbank loans are being negotiated at 0.03%, 3bps 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. Ubank trimmed rates on its Usaver and Usaver Ultra accounts by 5bps each.
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 | 0.25% | |
| ANZ Progress Saver | 0.25% | Minimum $10 deposit and no withdrawal per month |
| Arab Bank Online Savings | 0.70% | Minimum balance $500,000. |
| Bankwest Smart eSaver | 0.40% | 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 | 0.50% | Maximum 1 withdrawal per month. |
| CBA NetBank Saver | 0.05% | |
| CBA Goal Saver Account | 0.30% | 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 | 0.30% | Minimum balance $250,000 |
| ING Savings Accelerator | 0.75% | Minimum balance $150,000 |
| Macquarie CMA | 0.00% | Minimum balance $5000 |
| ME Online Savings | 0.05% | |
| NAB iSaver | 0.05% | |
| NAB Reward Saver | 0.30% | 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 |