Term deposit rates indicate a slowdown

The NAB may be raising interest rates to its mortgage customers, but it is lowering them for its term depositors, indicating a complete rethink by the bank on long-term Australian interest rates.

Before Easter NAB was offering 8.1% on two year term deposits. Now it is offering just 7.5% – a drop of 0.6% in a week.

It has reduced its one year (11 months) rate from above 8% to 7.85%.

The Commonwealth Bank is the most anxious to tap Australian deposits and is offering 8.1% for one year, but it does not have a two year rate. Westpac and ANZ are offering only 7.65% for one year.

There is no doubt that the banks need to recoup their overseas borrowing costs because they need to build up their capital to avoid a full credit squeeze. But they are clearly optimistic that the Australian economy will slow, thus reducing local rates from where they thought they would go to before Easter.

At the same time the banks also seem to believe that the overseas rate pressure will have subsided within a year, so they are reluctant to lock in high two year rates.

Footnote: All rates quoted are from the banks’ web sites on the evening of 26 March.

This story first appeared on BusinessSpectator.com.au