Term deposit rates expected to keep falling
(17 May 2012 – Australia) Retirees and pensioners living off bank interest payments will have to expect further cuts to deposit rates throughout the next year.
Banks are now trying to offset funding cost pressures to maintain margins in a sluggish business environment. Analysts from Deutsche Bank said there is ''still scope for further downward moves in term deposit rates'' as deposit rates ''have been slow to fall''.
While the major banks have been holding on to part of cuts to official interest rates from the Reserve Bank of Australia (RBA), they have so far been jostling over deposits, which are making up an increasing part of their funding given the cost of wholesale funds offshore.
Term deposit rates have fallen on average 35 basis points since the end of March, according to Deutsche analyst James Freeman, with around 20 basis points cut before the RBA lowered rates earlier this month and another 15 basis points since.
''Further movements in either the lending rates or deposit rates are needed to offset funding pressures,'' Freeman said.
There was ''potential for further reduction in term deposit rates''.
''It normally takes up to two to three months for rate reductions to be passed through to the term deposit book and hence there is still scope for term deposit rates to reduce even in a competitive environment,'' he said.
ANZ, Commonwealth and NAB have all dropped the base rates on their online savings products by 50 basis points. ANZ and CBA were reducing rates the quickest, Deutsche said, likely reflecting their better deposit to loan ratios.
While the major banks have been holding on to part of cuts to official interest rates from the Reserve Bank of Australia (RBA), they have so far been jostling over deposits, which are making up an increasing part of their funding given the cost of wholesale funds offshore.
Term deposit rates have fallen on average 35 basis points since the end of March, according to Deutsche analyst James Freeman, with around 20 basis points cut before the RBA lowered rates earlier this month and another 15 basis points since.
''Further movements in either the lending rates or deposit rates are needed to offset funding pressures,'' Freeman said.
There was ''potential for further reduction in term deposit rates''.
''It normally takes up to two to three months for rate reductions to be passed through to the term deposit book and hence there is still scope for term deposit rates to reduce even in a competitive environment,'' he said.
ANZ, Commonwealth and NAB have all dropped the base rates on their online savings products by 50 basis points. ANZ and CBA were reducing rates the quickest, Deutsche said, likely reflecting their better deposit to loan ratios.
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