Despite the central bank's cutting interest rates, households continue to stash away money with the big banks, preferring the security of deposits over riskier investments such as shares.
According to data released by the Australian Prudential Regulation Authority (APRA), total household deposits with banks and other authorised deposit-taking institutions sat at $577.58 billion as of the end of October 2012, up from $572.29 billion as at the end of September.
The level of total household deposits rose despite a cut in official interest rates in October to 3.25 per cent from 3.5 per cent in September. The Reserve Bank this week cut official interest rates a further 25 basis points to 3.0 per cent, which will put further downward pressure on term deposits rates and bond yields.
Household deposits with the Commonwealth Bank jumped to $166.30 billion in October, a big jump from $147.97 billion at the end of September, and up from $140.68 billion in January 2012.
Among the big banks, household deposits with Westpac had risen to $132.63 billion by the end of October, up from $130.53 billion as at the end of September and up from $122.49 billion in January.
Household deposits with National Australia Bank rose to $84.24 billion, up from $83.68 billion in September.
Deposits with ANZ sat at $85.48 billion, up from $84.84 billion in September and up from $78.19 billion in January.
According to Dr Stephen Nash, director, strategy and market development with fixed-income broker FIIG Securities, the official cash rate is likely to fall to 2.5 per cent by the end of 2013, with Australian 10-year bond yields also expected to rally below 3 per cent from current levels of around 3.15 per cent.
"We now expect more easing to occur over the latter part of 2013, assuming no dramatic developments in offshore markets in the short term. At the end of 2013, we expect the cash rate to be around 2.50 per cent. Specifically, scope for even more easing than currently expected - even below 2.50 per cent - might emanate from global developments, especially in Europe, where risks remain significant yet very difficult to predict," Dr Nash said in a weekly research note.
Australian bond yields are also expected to fall. Attracted by the relatively high yields, Australian bonds have been sought by sovereign debt funds and governments to diversify their portfolios away from lower yielding and riskier US and European debt markets.
