by Leon de Wet

Savers really have been burnt by the low returns from cash. This has been highlighted again with Reserve Bank data that shows the average ‘special’ rate on $10,000 retail deposits (all terms) fell from 0.95% in March to 0.80% in June, well below the latest core inflation point of 1.80%. The reasons include:

i) a cut to the RBA’s overnight cash rate to 0.25%;

ii) yield curve control (YCC) whereby the RBA aims to keep the 3-year Australian government bond yield at around 0.25%; and

iii) a term funding facility (TFF) made available to banks to support lending.

The TFF allows banks to borrow from the central bank at 0.25% for three years, meaning they are not under pressure to compete for retail deposits to fund their lending. While scheduled to finish at the end of March 2021, in the current environment an extension should not be ruled out.

All indications are that the overnight cash rate and YCC measures, guidance is for these to be in place until progress is made towards full employment and higher inflation. Based on the most recent economic update from the Treasurer, this is unlikely to occur until at least the end of 2022 or even beyond.

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