Household deposits fall for the first time in two years

afr.com:

Australians withdrew nearly $7.8 billion from bank deposits in June, the first big drawdown since May 2021 and the largest on record, as interest rate increases and high inflation started to bite into savings buffers.

While savings levels have proven a challenge for the Reserve Bank as it tries to return inflation to target, new data from the Australian Prudential Regulation Authority shows the most aggressive tightening cycle in a generation is starting to take a toll.

Falling deposits also have the potential to pose a problem for banks, given they are a stable, cheap and substantial source of funding. Ben Rushton

While the country had $1.38 trillion on deposit in May, this declined to be closer to $1.37 trillion by June 30, according to APRA.

But RateCity research director Sally Tindall said while it was further proof households are using savings to make ends meet, there is still a “giant buffer propping up” household budgets.

“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,” she said.

The RBA will meet on Tuesday; economists are split on whether the central bank will lift or hold rates at the 4.1 per cent level.

Atlas Funds Management chief investment officer Hugh Dive said the fall in deposits was “not a great surprise” given mortgage repayments were rising, and the relatively poor returns earned by savers.

The Australian Competition and Consumer Commission is reviewing deposit rates and how they are set, but banks are resistant to any changes to the current regime.

Falling deposit balances also have the potential to pose a problem for banks, given they are a stable, cheap and substantial