Big banks cut term deposit rates ahead of RBA interest call

Three of the big four banks are “betting” on interest rates being slashed after making a big call, according to a finance expert.

Three of the four big banks have cut rates on their term deposit accounts months ahead of when interest rates are expected to officially drop.

Experts predict the Reserve Bank of Australia won’t move to slash interest rates until at least December as concerns linger about underlying inflation levels.

But it has been revealed the Commonwealth Bank, NAB and ANZ have all cut the interest rates on their term deposit accounts in the past week.

It means customers will begin to see less interest earnings in those accounts over the coming months.

The Commonwealth Bank was the first of the big banks to cut term deposit rates. Picture: NCA Newswire / Gaye Gerard

Westpac was the only one of the big four not to follow suit after CBA went first on August 14, dropping its rates on all term deposits by up to 50 basis points.

ANZ and NAB have since dropped rates on their term deposit accounts by up to 80 basis points.

The rates for 12-month term deposit accounts now sit at 4.80 per cent across those three banks, with Westpac lower at 4.25 per cent.

Sally Tindall from Canstar said it was “no surprise” the banks had made this decision with economists predicting the RBA’s next move to be down.

She said term deposit rates tended to “move in advance of expected cash rate changes” as banks try to predict potential official rate movements.

“The Canstar database shows 12 banks cut 57 rates in the last week, while five banks hiked a total of nine rates,” Ms Tindall said.

Scott Phillips, the Chief Investment Officer at finance advice company The Motley Fool Australia, said it was a sign the big banks were predicting a cut in interest rates.

“What the banks are effectively betting on is that rates will be lower rather than higher in the future,” Mr Phillips told Sky News.

“They expect mortgage rates to come down.”

The move comes after CBA announced a $9.48 billion net profit in its latest financial year results, down six per cent from the previous term.’

Earlier this month the RBA decided against lowering the cash rate from its current mark of 4.35 per cent citing a “persistent” issue with inflation which was sitting at 3.9 per cent.

“The economic outlook is uncertain and recent data have demonstrated that the process of returning inflation to target has been slow and bumpy,” the RBA board said in a statement.

Reserve Bank of Australia Governor Michele Bullock says inflation is still too high. Picture: NewsWire / Martin Ollman

“Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range.”

Minutes from the August 5 and 6 meetings show the RBA board considered raising the cash rate after discussing “several developments” that indicated inflation might not return to the target range of 2-3 per cent until late 2025.

RBA Governor Michele Bullock echoed this sentiment when she appeared before a committee meeting at Parliament House in Canberra last week.

“Circumstances may change, of course, and the outlook is uncertain,” she said.

“But based on what the board knows at present, it does not expect that it will be in a position to cut rates in the near term.”

The RBA has held interest rates steady at its last six meetings now, having raised them by 425 basis points since May 2022.

Originally published as Big banks cut term deposit rates ahead of RBA interest call