Summary: Cash rate expectations path slightly steeper; cash rate expected to hit 0.245% by November 2022; week’s domestic economic reports generally positive; one change in 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 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 creep up from the current rate of 0.030% to 0.245% by November 2022.
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 positive overall.
At the very start of the week, ANZ’s latest Job Ads survey reported a modest decline in July. ANZ expects the effects of lockdowns and other restrictions to be limited unless extended for a prolonged period.
The Melbourne Institute’s July reading of its Inflation Gauge posted a 0.5% increase but the annual rate fell back to 2.6% from 3.0%.
The next day, June dwelling approvals slid by more than what was expected. However, the figures are still much higher than in June 2020. June home finance approvals produced a similar picture.
That afternoon, the RBA Board left its policy rates unchanged. While it expects a contraction in the September quarter, it also stated it expects the economy to bounce back once pandemic restrictions are wound back.
Midweek, the second estimate of June retail sales decreased by 1.8%, in line with the preliminary estimate. On an annual basis, sales increased by 2.9%, down from May’s comparable figure of 7.7%. Turnover increased in South Australia, Western Australia and the ACT but fell in all other states and territories.
On Thursday, preliminary trade figures for June indicated Australia’s trade surplus increased to $10.5 billion from $9.3 billion in May. Exports increased by 3.6% to $43.3 billion and imports rose by 0.8% to $32.8 billion.
At the end of the week, the RBA published its August Statement on Monetary Policy, with some adjustments of growth, unemployment rate and inflation forecasts.
3 month BBSW is a useful benchmark for cash rates and it finished the week unchanged at 0.02%. 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 one change made by a deposit-taking institution in our survey of cash account interest rates this week. The Bank of Queensland trimmed its Bonus Interest Savings Account rate by 5bps. 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 |