Summary: Cash rate expectations noticeably flatter; cash rate now expected to hit 0.17% by November 2022; week’s domestic economic reports generally viewed as negative; no changes to ADI cash rates.
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 moved to reflect a noticeably 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 creep up from the current rate of 0.030% to 0.17% by November 2022. A week ago, the November 2022 contract’s price implied a rate of 0.235%.
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.
Data released during the week which had the potential to affect interest rate expectations were generally viewed as negative.
On Tuesday, the RBA released the minutes of its August board meeting. Economists and other observers were hoping for some insight on the decision to leave its “tapering” decision intact when more than a few had expected some deferment. Apparently the RBA is saving this potential action for next year if required.
Midweek, the June quarter Wage Price Index report did not provide the expected lift in wages, undershooting expectations.
On the same day, Westpac and the Melbourne Institute released the July reading of their leading index. The annualised growth rate declined for a fourth consecutive month but it still implies above-trend GDP growth.
On Thursday, July’s labour force report indicated the jobless rate had fallen further under 5%. However, economists expect pandemic restrictions to now hit employment numbers in coming months.
3 month BBSW is a useful benchmark for cash rates and it finished the week 1bp lower at 0.01%. 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 no changes made by deposit-taking institutions in our survey of cash account interest rates this week. The median cash rate remained unchanged at 0.28%.
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 | 0.25% | |
| ANZ Progress Saver | 0.35% | 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 | 0.35% | On balances of $250,000 - $999,999. Minimum $200 deposit and no withdrawal per month. |
| Great Southern Bank | 0.40% | 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 eOptions | 0.01% | |
| UBank USaver | 0.70% | Limit $200,000. Minimum $200 deposit per month. |
| UBank USaver Ultra | 0.10% | Limit $200,000. Minimum $200 deposit per month. |
| Up Saver Account | 1.10% | Calculated daily, paid monthly once qualfied |
| Volt Bank | 0.90% | Limit $245,000 |
| Westpac eSaver | 0.05% | |
| Westpac Reward Saver | 0.20% | Minimum $50 deposit and no withdrawal per month |
| 86400 Save account | 1.20% | On balances upto $50,000 |