Term deposits down in same month RBA cut cash rate

Reserve Bank of Australia figures have revealed the value of term deposits held with banks fell 1.1% in May to A$515 billion, compared with the previous month.

The drop in term deposit balances came in the same month the RBA Board cut the official cash rate to 2%. The figures also showed a sizeable drop of 3.6% in the value of term deposits since the start of the year.

Several banks such as the Commonwealth Bank and NAB that held back part of the cash rate in May, cutting mortgage rates by less than 25 basis points to maintain deposit rates, actually grew their deposits in the month.

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This comes as the latest banking statistics from the Australian Prudential Regulation Authority (APRA) showed several banks including AMP, Arab Bank, BOQ, Suncorp and Citibank have experienced deposit outflows in recent months.

APRA found that deposit balances grew by just 0.1% in May compared with the previous month, while housing finance balances increased by 0.5%.

With lending growth exceeding growth in deposit flows, which hasn’t occurred since the financial crisis, banks may have to source more funding from the wholesale market or sacrifice some margin and compete more for deposits.

See the latest APRA banking statistics here.