RBA meeting finely balanced as household savings finally drop

Money in the bank from households has dropped for the first time since May 2021, suggesting Australians are starting to eat into their savings buffers as the cost of living continues to rise.

The data released from APRA today for June has revealed deposits from households dropped by 0.56 per cent, or $7.76 billion, from the previous month.

APRA monthly deposit statistics: household deposits

Source: RateCity.com.au

Big four banks split on Tuesday’s meeting

While many economists believe the RBA will pause, most agree the meeting will still remain a close call with CBA and Westpac forecasting a hike to 4.35 per cent.

Big four banks’ current cash rate forecasts:

CBA: One more hike to a peak at 4.35%, with four cuts next year to a cash rate of 3.35% by September 2024

Westpac: One more hike to a peak at 4.35% with three cuts next year to a cash rate of 3.60% by December 2024

NAB: Hold in August, but potential for one to two more hikes in coming months, with four cuts starting from the June quarter in 2024 to a cash rate of 3.10% by December 2024

ANZ: A second consecutive pause at 4.10% with one 0.25% cut in Q4 2024 to a cash rate of 3.85% by December

What would a cash rate of 4.35% mean for borrowers?

If the RBA does hike the cash rate to 4.35 per cent, the average borrower with a $500,000 loan at the start of the hikes last May could end up paying a total of $76 more than the previous month, and $1,211 more than when the cash rate hikes began fifteen months ago.

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA av. existing owner-occupier variable rate of 2.86% in April and assumes banks pass the hikes on in full.

RateCity.com.au research director, Sally Tindall, said: “Household deposits have finally gone down for the first time since May 2021, with the latest APRA statistics recording a $7.76 billion drop in just one month.”

“The total savings buffer across households is now on the decline as many families eat into their cash supplies to combat the double whammy of rising rates and cost of living pressures,” she said.

“While this turnaround is yet another sign the rate hikes are finally taking their toll, with $1.37 trillion still in the bank in savings accounts, term deposits, transaction and offset accounts, there’s still a giant buffer propping up the impact of these hikes for some Australians.

“The problem is, some households are still managing to build up their war chests, while others ate up their savings buffers months ago and are now struggling to stay afloat.

“Tuesday’s meeting will be a close call with plenty of reasons for and against a hike. Retail trade is down, while annual headline inflation has slowed for the second quarter in a row, however, at 6 per cent there’s still a long way to go.

“With unemployment still at just 3.5 per cent, the RBA certainly has cover to fire off one or two more hikes in the months ahead, should it choose to do so.

“Borrowers should plan for two more hikes. Regardless of the Board’s decision on Tuesday, preparing for higher rates is never a bad idea,” she said.

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