“There’s enormous pressure to cut rates on deposits to match the declines that are happening with asset yields,” Andrew Frisbie, an executive vice president at the analytics and advisory firm Novantas, said in an interview.
Markets and analysts widely expect more cuts from the Fed, including at its next scheduled meeting on March 17-18, as Treasury yields have plummeted to new lows. “There is still a fair amount of room for [deposit] rates to be cut if interest rates were to head toward zero,” Frisbie said in the interview.
Among consumers, there is a shift in psychology and less inclination to shop around when rates fall below a certain threshold, Frisbie said. Data collected by Novantas shows that consumers “get somewhat less price sensitive if all of a sudden you can’t get a rate that starts with a one.”
Commercial clients’ tendency to build up precautionary cash cushions amid economic conditions associated with low rates, and less competition from money market alternatives, also give banks more latitude to lower pricing, Frisbie said.
Banks “need to be very surgical in understanding who are the customers where you might be able to cut with a near 100% beta and what customers … you might need to cut with less ferocity,” Frisbie said.