Summary: Cash rate expectations path hardly changed; cash rate now expected to average 0.91% in December 2022; domestic data positive; one reduction 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 hardly changed with respect to the 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 0.040% to 0.09% 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 0.91%. A week ago, the December 2022 contract’s price implied an average rate of 0.93%.
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 positive, despite their lack of effect.
On Tuesday, the November “flash” reading of IHS Markit’s composite PMI increased from 52.1 in October to 55.0. IHS Markit Economics associate director Jingyi Pan noted the rate of expansion was the highest in five months but also referred to longer delivery times, “widespread” shortages and price increases. A reading above 50 indicates an expansion in comparison to the previous month and the higher the reading, the greater the expansion.
The next day, the September quarter report on construction work done declined by 0.3%, beating expectations.
A day later, the latest capital expenditure report posted a 2.2% fall in the September quarter to be up 12.9% over the year.
At the end of the week, October’s preliminary retail sales report indicated retail spending had increased by 4.9% over the month, again beating expectations.
3 month BBSW is a useful benchmark for cash rates and it finished the week unchanged at 0.05%. 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 institution in our survey of cash account interest rates this week. ING lowered its Savings Accelerator rate by 10bps.
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 | 0.50% | 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 | 0.40% | 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 |