“Given recent developments in global markets, changing customer behaviour and growing regulatory scrutiny, we believe that deposit rates will continue to rise by more than the cash rate in the months ahead,” Wiles said in a note.

Earlier in the cycle of interest rate rises, banks were making a windfall from not passing on the full benefit to depositors, but analysts now believe this benefit has faded.

Macquarie analyst Victor German said he thought banks were competing more aggressively for deposits in part because they needed to replace large amounts of funding that had been raised cheaply from an emergency RBA scheme launched during the pandemic.

“The funding task is large, and even though they are paying more for these deposits, it’s still cheaper than wholesale money,” German said. “It’s a competitive market where every bank needs more funding – banks rely on using the price lever [to] attract deposits.”

Futures markets are not expecting a rise in the cash rate from its current level of 3.6 per cent on Tuesday after recent signs of cooling inflation and a slowing economy, though some market economists are tipping a rise.

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German said that if the RBA holds the cash rate at 3.6 per cent, it could be viewed positively by bank investors because it would lower the chance of a sharper economic downturn, which would potentially hurt banks down the track.

“I think we are getting to a point where rates staying on hold, or even falling, is actually good for bank investors.”

At the same time as banks have lifted deposit rates, German said the outlook for banks’ margins from mortgages remained “challenging” as he also highlighted fierce competition to attract new customers.

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