Data and compliance manager at comparison website Mozo, Peter Marshall, said that in March, it had recorded 130 cuts to individual term deposit products, the most since August of 2017, and a “negligible’ number of rate increases. The changes included large and small institutions, and the trend had continued into April.
Mr Marshall’s analysis also showed the best offers being promoted by most major banks for terms of less than one year had declined slightly since the start of March. The best rates from the big four for terms of less than one year were about 2.45 per cent.
Banks typically set deposit rates according to their need for funding, and the competitive conditions in the market. For example, Westpac said it “continually” reviewed all of its deposit interest rates.
“When doing this, we consider a range of factors including financial market conditions, as well as offering competitive interest rates for term deposit products,” a bank spokeswoman said.
Managing director of fixed interest broker Curve Securities, Andrew Murray, said whole term deposit rates had also fallen over recent months, reflecting a decline in the benchmark bank bill swap rate, and softer demand for loan funding due to the weak housing market.
Mr Murray noted there had also been a “material” change in the 90-day bank bill swap rate (BBSW) — a key inter-bank funding rate — since the start of the year, from more than 200 basis points to about 170 basis points. He suggested the decline in funding costs could lead to interest rate cuts on loans.
If these funding pressures continue to stay low, and wholesale rates continue to drop, then the banks really should unwind the rate hikes that they put in place towards the end of last year.
Curve Securities managing director Andrew Murray
“If these funding pressures continue to stay low, and wholesale rates continue to drop, then the banks really should unwind the rate hikes that they put in place towards the end of last year, based on the fact that their funding pressures had gone up,” Mr Murray said.
AMP Capital chief economist Shane Oliver also said the spread between BBSW and cash rate expectations had come down to “normal levels,” and if it remained here for a few months, he expected the costs would be passed on to borrowers
However, other experts say any cut in banks’ standard variable rates is unlikely. Shaw Stockbroking analyst Brett Le Mesurier said the decline in BBSW was “quite large” in itself but there were other negative forces dragging on bank profits.
These included the higher discounts off their advertised lending rates, customer remediation costs, and slowing loan growth. Mr Le Mesurier said banks would not be cutting variable rates in response to the decline in funding costs.
“They are not going to be cutting standard variable rates because they’ve been offering higher discounts,” Mr Le Mesurier said.
Clancy Yeates is a business reporter.