Westpac Comment On IB Pricing

Westpac note that "the market believes the substantial liquidity provided by the TFF and RBA asset purchases will remain in place for many months to come, with the cash rate expected to be around 0.05% for the next 12 months. That would represent around 50% of the cash target of 0.10%, which would be similar to the current ratio. It is also in the vicinity of the ratio that currently exists between the interest paid on surplus ES (0.10%) and where the effective cash rate has been settling - averaging +3bps for many weeks. So for now, we think that the market has correctly re-priced and we will need to await the November RBA Board meeting before any further re-calibration is likely. With the expansion of the TFF, and the lowering of the cost of funds within that programme, we see little reason why the cash rate would move negative. The banks will have significant incentive to purchase bonds, even if the bond is only yielding 10 basis points, or lend to the private sector, which is the ultimate goal."