Summary: Cash rate expectations path again slightly flatter through 2022, early 2023; cash rate now expected to average 1.405% in March 2023; week’s data largely positive; RBA statements push rate rise expectations out slightly; no changes to ADI cash rates in survey.
Expectations moved to reflect a slightly flatter path for the actual cash rate through 2022 and into early 2023 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 0.050% to 0.125% by May and then increase at a faster rate through to March 2023 where that month’s contract price implied an average rate of 1.345%. A week ago, the March 2023 contract’s price implied an average rate of 1.405%.
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 0.05%, 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.
Economic data or events which had the potential to affect domestic interest rate expectations were largely received as positive. However, the latest RBA Board meeting and the statements which followed pushed expectations of an official rate rise out slightly.
The Melbourne Institute’s January reading of its Inflation Gauge was released at the very start of the week. The index rose 0.4% over the month and the annual rate moved back to 3%.
December private credit figures were released later that morning. Total lending increased by 0.8% in December, taking the annual growth rate from 6.6% to 7.2%, the highest since August 2016.
December home loan approval figures came out the next day. While they increased slightly more than expected, economists were generally pessimistic with respect to further rises in the short term.
That afternoon, the RBA left its cash rate target unchanged at 0.10% but flagged the end of its bond purchase programme. The Bank’s GDP growth, inflation and unemployment forecasts were all updated and they were generally consistent with the idea rate rises will come earlier than late-2023 or 2024. However, comments made by RBA Governor Philip Lowe the next day in a speech made markets question the likelihood an early rate rise.
Midweek, December’s preliminary retail sales report indicated retail spending had fallen by 4.4% over the month, missing expectations of a 2% decline. Sales increased by 4.8% over the year.
December dwelling approvals increased by more than expected on Thursday but they were received as being little more than “noise” in a historically volatile data series and not a sustained lift.
Preliminary trade figures for December were released at the same time. They indicated Australia’s trade surplus declined from $9.8 billion after revisions in November to $8.4 billion. Exports increased by 0.8% to $45.3 billion and imports increased by 5.0% to $37.0 billion.
At the end of the week, the February Statement on Monetary Policy (SoMP) presented in more detail the updated RBA growth and inflation forecasts which had been flagged after the RBA Board meeting on Tuesday.
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3 month BBSW is a useful benchmark for cash rates and it finished the week 1bp lower at 0.07%. Currently, the RBA’s target for the overnight lending rate between banks is 0.10% but actual overnight interbank loans are being negotiated at 0.05%, 5bps 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.
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 | 0.15% | |
| ANZ Progress Saver | 0.20% | 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 | 0.50% | 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 |