The BankWest anti-arbitrage

BankWest took a punt in early May 2008 by offering an 8.5 per cent promotional rate for new deposits of up to $5 million for the online savings account the TeleNet Saver, a rate valid until the beginning of 2009.

At the time the six and nine month bank bill swap rates were both 7.95 per cent (an approximate time line to the completion of the promotional rate), and the general market consensus was official cash still had a couple more 25 point increases before the end of the year.

New retail deposits were being used by the bank to help fund lending, with Paul Vivian telling The Sheet in early July the Rate Tracker, which has an ongoing variable of one per cent below the big four bank average for the first two years, (currently 8.6 per cent), was now the bank's marquee lending product, accounting for more than half of all new mortgages.

Now the market is expecting rates to fall, with the economic teams at Westpac forecasting that interest rates will be cut by 50 points in September. If this is the case, the anti-arbitrage will begin.

If the big four cut their ongoing variable by more than ten points before the end of the year, BankWest will then begin lending new loans via the Rate Tracker at a lower rate than they are paying for new deposits in the TeleNet Saver, unless they take a backward step and cut the promotional rate.

With the four-month BBSW dropping 43 points to 7.31 per cent over the two weeks to Friday, the TeleNet saver may start receiving some hefty deposits to get the 8.5 per cent on offer.