Malaysian developer <a href="https://www.apartments.com.au/developers/s-p-setia">SP Setia</a> is the latest to jump into St Leonards booming Transport Oriented Development precinct.

The developer, which has previously delivered Sapphire by the Gardens apartment development in Melbourne, identified the Atchison Street site in 2023. It filed a Scoping Report around 12 months ago, and now has revealed the designs for the new&nbsp;40-storey mixed-use tower.

The State Significant Development Application covers <a href="https://next-portal.urban.com.au/projects/14650/summary">20-22 Atchison Street</a>, a 1,374 sqm site positioned between St Leonards Station and the new Crows Nest Metro station.

Designed by <a href="https://www.apartments.com.au/architects/cox-architecture">COX Architecture</a>, the project would deliver 181 apartments, above a four-storey commercial podium, five basement levels, and new public domain works along Mitchell Street. The apartment mix comprises 35 one-bedroom apartments, 39 one-bedroom-plus-study apartments, 85 two-bedroom apartments, and 22 three-bedroom residences.

The proposal has been lodged as a shop-top housing development under the NSW Government’s TOD planning pathway, which allows increased density around key transport infrastructure. The site sits within the recently rezoned Crows Nest Accelerated TOD Precinct.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b799673d-48e2-46b0-801a-0e33a9330100" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20site.png?VersionId=dPh0UfwfaHpbFL1R7H1cbZNbIW0CHbCC" />

SP Setia acquired the Atchison Street site as part of its continued expansion into the Australian apartment market. In comments made to City &amp; Country (The Edge Malaysia) in 2023, SP Setia President and CEO Datuk Choong Kai Wai described the acquisition as “a strategic move” aligned with the group’s post-pandemic market recovery strategy.

“Our target for this exceptional development is local and overseas buyers, including first-home buyers, downsizers and investors,” Choong said.

The tower has been designed as a slender vertical form rising from a mixed-use podium, with COX Architecture positioning the development as a response to the evolving St Leonards and Crows Nest skyline.

“The purpose of the project is to facilitate the delivery of high-quality housing at a strategically located site and deliver a built tower outcome that is consistent with the desired future character of St Leonards and aligns with the TOD controls,” the design report stated.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="b1a85eee-76f7-436c-a6da-73ba827b9b13" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/atchinson%20entry.png?VersionId=dA9jHGPMcm.dDbwk4QfxqWiY5bfh3UVt" />

The podium would incorporate retail uses fronting Atchison Street, commercial tenancies, landscaped communal areas, and pedestrian improvements along Mitchell Street. Vehicle access and loading would be consolidated via Atchison Lane.

Residents would have access to more than 665 sqm of communal indoor and outdoor spaces, while the development proposes 96 parking spaces across five basement levels.

The proposal also includes a commitment for 10 per cent of residential floor space to be allocated toward affordable housing through a monetary contribution.

COX said the tower form responds directly to the emerging high-density character of the precinct while seeking to maximise solar access, cross ventilation, and outlook from apartments.

<img alt="First look: SP Setia targets St Leonards skyline with 40-storey TOD tower" data-entity-type="file" data-entity-uuid="2163f85c-f63b-4be3-aafa-f8763976cec5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Article%20Feature%20Image%20%28Grid%29_5.png?VersionId=WiAmtIKJ6.ZQ41EtYEQ1fol7AeorKBlL" />

“The building is orientated towards north,” the Apartment Design Guide compliance report noted, adding that the tower’s slim form was driven by the constrained inner-urban site dimensions.

The design also incorporates landscaped setbacks and communal open space at podium level, intended to soften the interface with surrounding streets and improve pedestrian amenity.

The project adds to a growing wave of redevelopment proposals reshaping St Leonards and Crows Nest following the opening of the Sydney Metro City line and the NSW Government’s push for higher-density housing around major transport nodes.

Last week Stockland filed plans just down the road. They want to build a <a href="https://www.apartments.com.au/new-apartments/601-pacific-highway-st-leonards-nsw-2065">52-storey tower on Pacific Highway</a>.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-stockland-plans-52-storey-538-apartment-st-leonards-tower">First look: Stockland plans 52-storey, 538-apartment St Leonards tower&nbsp;</a>

Joel Robinson

First look: SP Setia targets St Leonards skyline with 40-storey TOD tower

<a href="https://www.apartments.com.au/developers/urban-property-group">Urban Property Group</a> has revealed plans for a new mixed-use tower at 10 Dangar Street, Wickham, advancing a proposal that would reshape the southern gateway to Newcastle’s city centre with one of the city’s tallest residential buildings.

The State Significant Development proposal, now on exhibition, seeks approval for a <a href="https://www.apartments.com.au/new-apartments/bowline-10-dangar-street-wickham-nsw-2293">43-storey tower</a> immediately adjacent to the Newcastle Interchange. The project would deliver around 200 apartments, including 42 affordable housing dwellings, alongside 99 co-living units, a 171-room hotel, retail space, and new public domain integrated through the site.

The scheme marks a significant escalation of plans previously approved for the site. Urban Property Group took over the prominent 2,904 sqm parcel, where excavation and demolition had already commenced under an earlier consent for a 14-storey mixed-use development.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="58a96dd9-407f-4d20-86b4-94e4bfeef74b" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20podium.png?VersionId=LGlf08pdFGAZDzvx_CXC4XakHNZRuEE0" />

Designed by <a href="https://www.apartments.com.au/architects/sjb-architects">SJB</a>, the tower has been conceived as a landmark transit-oriented development anchored to the Newcastle Interchange precinct. The proposal includes 245 build-to-sell apartments across a mix of one, two, and three-bedroom residences, as well as two penthouses. Fifteen apartments and one operational unit are earmarked for NDIS housing. The co-living component would add a further 99 units, while the podium would accommodate retail uses and hotel facilities.

SJB said the site presents “a valuable opportunity to anchor the precinct by setting the standard for design, active ground planes and character at the key southern gateway.”

The architecture responds directly to the site’s position beside major transport infrastructure and within one of Newcastle’s fastest-evolving urban renewal precincts. The tower form sits above a sculpted podium designed to frame new public spaces, including a through-site pedestrian link connecting Station Street to Hannell Street, landscaped plazas, and activated retail edges.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="a7bd6ff0-f7db-4ce8-a6dc-ea56e72c6149" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20lanne.png?VersionId=xzf39VADyhj7zBQY2I9fx9vI62u2tuSb" />

The design report describes the project as part of the broader transition of Wickham into “a vibrant, high-quality mixed-use urban precinct” that leverages proximity to the station, open space, and regional connectivity.

A detailed public art strategy has also been prepared for the development. The strategy positions the project as “a transit-oriented development of state significance at the gateway to Newcastle’s city centre” and outlines a series of integrated artworks responding to Newcastle’s industrial and transport heritage.

Creative Road’s curatorial framework for the project, titled Unveil, draws on “stratified surfaces, carved volumes, and light-filled apertures” while referencing Newcastle’s transformation from an industrial city into a contemporary education and technology hub.

<img alt="First look: Urban Property Group unveils Newcastle’s next supertower at Wickham interchange" data-entity-type="file" data-entity-uuid="77a882bb-14b1-4d28-99ff-9438e39508c0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/wickham%20site.png?VersionId=cevgo_vN0eKPK78P8YcEu3mKPLkpFqE7" />

The proposal is being advanced through the NSW Housing Delivery Authority pathway after being declared State Significant Development in June 2025. The accompanying scoping report states the development aims to “maximise the site’s proximity to the Newcastle Interchange by delivering transit-oriented development” while increasing housing supply and affordable housing provision within the Newcastle LGA.

Urban Property Group’s plans align with the long-term strategic vision established under the Wickham Master Plan, which identified the interchange precinct as suitable for substantial uplift in height and density. The current proposal would significantly intensify that vision, positioning the tower among the tallest developments proposed for Newcastle.

The site sits immediately north of the Newcastle Interchange, bounded by Dangar Street, Hannell Street, and Charles Street. It is surrounded by a rapidly growing cluster of residential towers and mixed-use projects that have emerged following the completion of the light rail and transport interchange.

First look: Urban Property Group unveils Newcastle’s latest tower at Wickham interchange

Bottega House has completed settlement of a landmark riverfront site in Macquarie Street, St Lucia, representing its first major Brisbane development.&nbsp;

Positioned on the banks of the Brisbane River, the <a href="https://www.apartments.com.au/new-apartments/180-macquarie-street-st-lucia-qld-4067">premium site at 180 Macquarie Street</a> features uninterrupted river frontage in one of Brisbane’s most tightly held residential precincts.&nbsp;

The proposed development, currently under assessment with Brisbane City Council, has been designed by <a href="https://www.apartments.com.au/architects/plus-studio">Plus Studio</a> with interiors by <a href="https://www.apartments.com.au/interior-designers/mim-design">Mim Design</a> and will deliver a boutique collection of premium residences positioned specifically for owner occupiers and downsizers.&nbsp;

The residences are set to redefine luxury apartment living in the area, with a focus on architectural quality, refined finishes, landscape integration and elevated amenities including curated wellness facilities, resort-style pools and recreation spaces rarely seen in the local market.&nbsp;

Exclusive sales for the project will be led by Keenan &amp; Byrne, ahead of an anticipated launch later this year.&nbsp;

Bottega House Managing Director Nick Malloch said the project reflects the group’s ambition to deliver a highly curated residential offering within one of Brisbane’s most tightly held precincts.&nbsp;

“This is an incredibly rare riverfront opportunity and one we have approached with a long-term perspective,” Malloch said.&nbsp;

“Our vision from the outset was to create a boutique collection of residences that feel more like private homes than traditional apartments, with generous proportions, refined finishes and exceptional amenity throughout."

Malloch says there is a&nbsp;lack of premium owner-occupier stock of this quality in the market, particularly for downsizers wanting space, privacy and a true lifestyle offering without compromise.&nbsp;

"Demand is expected to be strong given the scarcity of premium riverfront opportunities of this nature within Brisbane’s inner-west."&nbsp;

Bottega House secures landmark riverfront site in St Lucia 

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<section data-scroll-anchor="false" data-testid="conversation-turn-2" data-turn="assistant" data-turn-id="request-WEB:5a5ab36c-8dd3-454c-b456-c501f22f0eb4-0" data-turn-id-container="request-WEB:5a5ab36c-8dd3-454c-b456-c501f22f0eb4-0" dir="auto">
The arrival of the first piling rig officially marks the commencement of construction at SIERA’s new beachside apartment development, Exhale, in Northcliffe.

<a href="https://www.apartments.com.au/new-apartments/exhale-surfers-paradise-8-enderley-avenue-surfers-paradise-qld-4217">Exhale</a>, a glass-encased tower featuring 54 large-scale apartments at 8 Enderley Avenue, is SIERA’s third Gold Coast development. It follows the recently completed PIPIS Bilinga beachfront project, which achieved suburb-record prices, and the soon-to-be-completed Chevron Island development, Tapestry.

[smartcode_project:default project_id=112661 project_image_fid=359603]

<a href="https://www.apartments.com.au/developers/siera">SIERA</a> Founder and Managing Director Brent Thompson said the arrival of the piling rig represented a significant milestone for the development, which is scheduled for completion in late 2028.

Over the next month, around 260 piles are expected to be installed as work progresses on the basement structure. The building is anticipated to rise above ground level early next year, before unveiling its sculptural glass curtain wall, developed in collaboration with specialist façade engineers.

“The façade was designed to maximise panoramic coastal views while creating a distinctive architectural identity,” Thompson said.

[smartcode_project:default project_id=112661 project_image_fid=355935]

Designed by BDA Architecture, Exhale will comprise just 54 two- and three-bedroom residences across 26 levels, a level of low-density living rarely delivered in this beachside pocket between Surfers Paradise and Broadbeach.

The project has been conceived as a resident-only building, with no short-stay accommodation permitted. SIERA says the model is intended to appeal to long-term owner-occupiers rather than transient holiday demand.

[smartcode_project:default project_id=112661 project_image_fid=361052]

Residences have been designed with large-format layouts and expansive glazing, with most apartments featuring more than 30 metres of glass frontage to maximise natural light and ocean views.

The amenity offering spans two levels and centres on wellness and lifestyle, including a heated magnesium pool, sauna, yoga and Pilates studio, gymnasium, private dining facilities, cinema lounge, and dedicated surfcraft storage.

[smartcode_project:default project_id=112661 project_image_fid=359607]

More than half of the apartments have already sold. SIERA has also opened a sales gallery for Exhale at its Chevron Island commercial premises, near its Tapestry tower and the site of its second Chevron Island apartment development, which is slated to launch in early 2027.
</section>
</section>

[smartcode_project_cta:default project_id=112661]

SIERA kicks off construction at Northcliffe tower Exhale

Local Little Bay residents, along with buyers from premium postcodes across Sydney’s affluent Eastern Suburbs, have dominated purchases in developer-builder Urban Property Group’s first Eastern Suburbs apartment development, <a href="https://www.apartments.com.au/new-apartments/este-little-bay-jennifer-street-little-bay-nsw-2036">ESTE Little Bay</a>.

The $250 million coastal project, one of the first new developments in the area in several years, has proven particularly popular with downsizers, especially those from Coogee and Bondi. One Double Bay downsizer paid $4.7 million for a four-bedroom penthouse, setting a new local apartment price record in the process.

Buyers have been attracted to the combination of coastal tranquillity, premium design and amenity-rich neighbourhood living. The walkable village setting, along with proximity to three of Sydney’s leading golf courses, New South Wales Golf Club, St Michael’s Golf Club and The Coast Golf Club, has also been a key drawcard.

[smartcode_project:default project_id=112343 project_image_fid=352689]

Built across two low-rise buildings designed by <a href="https://www.apartments.com.au/architects/hill-thalis-architecture-urban-projects-pty-ltd">Hill Thalis</a> and set along a lush, landscaped green spine, designed by leading landscape architect <a href="https://www.apartments.com.au/landscape-architect/arcadia-landscape-architecture">Arcadia</a>, ESTE Little Bay offers a collection of one, two, three and four-bedroom residences with interiors by Richards Stanisich.

<a href="https://www.apartments.com.au/developers/urban-property-group">Urban Property Group</a> Sales Director, Tom McIvor said the response to ESTE has been "nothing short of extraordinary."

“Buyers have been quick to recognise ESTE as a rare opportunity to invest in a coastal sanctuary that offers both seclusion and connectivity to the heart of Sydney,” McIvor said.

[smartcode_project:default project_id=112343 project_image_fid=352687]

<a href="https://www.apartments.com.au/project-marketer/srm-residential">SRM Residential</a> Senior Director, <a href="https://www.apartments.com.au/project-marketer/srm-residential">Clayton Ross</a> said the local market has responded incredibly well, driven by ESTE’s exceptional location and the rarity it offers.

“We’ve seen strong interest from a variety of buyer groups, all of whom are drawn to the exclusivity and quality of the build and construction by the 4.5-star iCIRT-rated builder / developer, Urban Property Group. There’s truly nothing else like it along Sydney’s coastline.”

[smartcode_project:default project_id=112343 project_image_fid=352690]

The project also includes robust buyer protections, including Resilience Insurance’s Latent Defects Insurance, providing 10 years of structural cover, and an independent iCIRT-rating of the developer.

“The iCIRT-rating adds another layer of confidence,” Ross added. “Buyers see it as a safeguard for their investment and their lifestyle.” A highlight of ESTE’s offering is its exclusive wellness amenities, including a heated rooftop infinity pool and outdoor heated spa, a state-of-the-art Technogym fitness centre, and a sauna.

<a href="https://www.apartments.com.au/new-apartments/este-little-bay-jennifer-street-little-bay-nsw-2036">ESTE Little Bay</a> is topped out and is on track to complete towards the end of 2026, with residents moving in before Christmas.

[smartcode_project_cta:default project_id=112343]

Eastern Suburbs buyers snap up ESTE Little Bay apartments

National Australia Bank (NAB) has brought forward the timing of the first RBA cash rate cut by three months.

NAB is now expecting a cut in February, in line with ANZ and Westpac, having initially thought a cut wouldn't come until May.

Commonwealth Bank, the nation's largest lender, still thinks the first cut will come in December.

NAB changed its call following the August monthly inflation figures that were released at the end of September, showing it had dropped to 2.7 per cent.

"The risk has been skewed to a first cut earlier in 2025, and today’s change acknowledges the balance of risks has likely shifted sufficiently for the RBA to feel comfortable cutting a little sooner than we earlier expected," NAB noted in its latest update.

They added that the cadence of the cuts may be faster than its central profile.

"Domestic inflation pressures are cooling, but only gradually, and we continue to expect the conditions for a cut will not be in place this year.

NAB believes the easing cycle will end at 3.1 per cent by early 2026, which is five cuts from the current 4.35 per cent cash rate.&nbsp;

CBA also thinks 3.1 per cent will mark the end of the cutting cycle, while Westpac is forecasting 3.35 per cent, and ANZ is the most pessimistic at 3.6 per cent, which would be just three interest rate cuts.

<h2>What would a rate cut in February look like for borrowers?</h2>

According to&nbsp;<a data-saferedirecturl="https://www.google.com/url?q=https://link.mediaoutreach.meltwater.com/ls/click?upn%3Du001.IVvjJ-2BPT0A8C3VxtqKc6e3bj5hBuw27WFEYqovsYs7kPsgFulYrdOzeP8gI7CybJOya3_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20hPXdLlPP9yD7DvFFDBM5yrTqxvcCiMfAsW1onD-2FcriL628eYdhNQE7bwzYrxcOYnmaYfRhGl-2FEHQ6eK2uQcLxs6Cbu6Dx0bYvpi5A6enmxMWU5TkcRYrP6Z8GbXZYtc5qSoKu6eWFBQR9K7fsjXwHMmby3D3X6Yx-2BxcDcdRruTG&amp;source=gmail&amp;ust=1727774368149000&amp;usg=AOvVaw2vK2ujS77CHs9VRvSSXzLC" href="https://link.mediaoutreach.meltwater.com/ls/click?upn=u001.IVvjJ-2BPT0A8C3VxtqKc6e3bj5hBuw27WFEYqovsYs7kPsgFulYrdOzeP8gI7CybJOya3_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20hPXdLlPP9yD7DvFFDBM5yrTqxvcCiMfAsW1onD-2FcriL628eYdhNQE7bwzYrxcOYnmaYfRhGl-2FEHQ6eK2uQcLxs6Cbu6Dx0bYvpi5A6enmxMWU5TkcRYrP6Z8GbXZYtc5qSoKu6eWFBQR9K7fsjXwHMmby3D3X6Yx-2BxcDcdRruTG" target="_blank">Canstar</a>, if there is a cut in February, a borrower with a $600,000 loan today and 25 years remaining would see their monthly repayments drop by $92.&nbsp;

<table border="1" cellpadding="0" cellspacing="0">
	<tbody>
		<tr>
			<td colspan="3">
			Impact of 0.25% pt cut in February 2025
			</td>
		</tr>
		<tr>
			<td>
			Current loan size
			</td>
			<td>
			Drop in monthly repayment
			</td>
			<td>
			New monthly repayment
			</td>
		</tr>
		<tr>
			<td>
			$600,000
			</td>
			<td>
			-$92
			</td>
			<td>
			$3,907
			</td>
		</tr>
		<tr>
			<td>
			$750,000
			</td>
			<td>
			-$114
			</td>
			<td>
			$4,884
			</td>
		</tr>
		<tr>
			<td>
			$1M
			</td>
			<td>
			-$153
			</td>
			<td>
			$6,512
			</td>
		</tr>
		<tr>
			<td colspan="3">
			Source:&nbsp;<a data-saferedirecturl="https://www.google.com/url?q=https://link.mediaoutreach.meltwater.com/ls/click?upn%3Du001.xWMOP9hChsvn-2BC9O-2FebBihXIZ4cEzbiuENdxm-2Bx3-2FYEEgYMhZlKWNj5Zzy1YZ56RuASD_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20v2akwr6-2BqLyRrlEgkJ4J-2BCCyY0x189xEHZA4Ylf8c7ChBqNIkhmftZzoFuZKFn43pw3oJVg2o1gumrpdA-2B7MB-2FBtmL2rFCI-2FXORATQHySCLVOMg7Vywv-2BqnnQUAtDz6XkvpwxdHFXh70VwKazzhJsICilEYOvP4ju0sIfi5g6TL&amp;source=gmail&amp;ust=1727774368149000&amp;usg=AOvVaw2qVnp6oqATgqDUi2Frm22q" href="https://link.mediaoutreach.meltwater.com/ls/click?upn=u001.xWMOP9hChsvn-2BC9O-2FebBihXIZ4cEzbiuENdxm-2Bx3-2FYEEgYMhZlKWNj5Zzy1YZ56RuASD_RgrM7qq-2BfK-2FtAHeRBLv5Qrb-2Bii5fzjLeKcP4w-2FkNgJPXygpiRhVUan3WV3QEggcf617UC8Z60RjQJZAqx7PiO7FtVJQSn0D46Zc3iTVP0kAhTTzG51cPpa5hrqz1OkSA-2BiXAxUajQ686MTtiseWBIdMdknd83aB7cOVgXlVTeHCGf3-2BcMHwfvI8TYlkUovqEhn4dj0KXf2eJGpb9-2BBv20v2akwr6-2BqLyRrlEgkJ4J-2BCCyY0x189xEHZA4Ylf8c7ChBqNIkhmftZzoFuZKFn43pw3oJVg2o1gumrpdA-2B7MB-2FBtmL2rFCI-2FXORATQHySCLVOMg7Vywv-2BqnnQUAtDz6XkvpwxdHFXh70VwKazzhJsICilEYOvP4ju0sIfi5g6TL" target="_blank">www.canstar.com.au</a>. Starting rate is the RBA existing average owner-occupier variable rate of 6.36%. Assumes banks pass the cash rate cut on in full the month after the meeting.
			</td>
		</tr>
	</tbody>
</table>

Canstar Data Insights Director, Sally Tindall, says if core inflation continues to track in the right direction, or unemployment starts to accelerate significantly, we could well see a cash rate cut as early as February of next year.

“All four big banks now believe the RBA will be ready to cut the cash rate in just over four months’ time, if not before, in the case of CBA.

“However, the outlook for both inflation and unemployment is still highly uncertain. A couple of wobbly sets of inflation data could see the RBA holding for longer, particularly if unemployment remains relatively steady."

&nbsp;

Commonwealth Bank, the nation's largest lender, still thinks the first cut will come in December.

NAB bring forward first RBA cut to February 2025

<html><body>
GUEST OBSERVER
Funding markets have shown some stress in recent weeks as investors and borrowers prepare for imminent structural reforms and amid cyclical issues around banks.
We look at the recent moves in single currency and cross-currency basis markets, USD Libor and credit spreads.
With less than two weeks until US money market funds are required to comply with new liquidity and asset rules, we opine on the outlook for funding markets.
Funding markets have seen significant shifts in recent weeks as markets prepare for the upcoming new money market rules in the US. The rules, outlined in US money market reform 2a-7 primer, will come into force on 14 October.
In addition to money market reform, a confluence of factors has increased the cost of funding, namely quarter and year-end as well as concerns around European banks. There has been in recent weeks the usual pickup in funding stresses associated with quarter end – normally because of the need for 3 month funding which rolls over the ‘turn’ of the calendar year (or financial year end for US banks).
With banks now less willing to have significant balance sheet items over their year-end, the cost of USD funds will remain elevated. This quarter end has seen an escalation of this normal arrangement due to the money market reform being implemented at the same time.
Furthermore, as investments shift out of ‘prime’ funds (those who hold credit) to government only funds, the ability of both banks and corporate borrowers who access short-term funding has been diminished. This has forced borrowers out the term curve – or in the case of sectors of the bank market – to simply ‘pay up’ for alternate sources of funding.
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<img src="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%205.27.32%20PM.jpg" alt="">
The demand for USD has shown up in the sharp moves in 3 month cross-currency basis swaps (Figure 1) which have lifted the cost of funding sharply in the last week. The JPY basis has been driven by the structural need for Japanese banks to find a new funding source given their large reliance on US MMFs. This issue has not been fully addressed despite an increase in USD funds available from the BoJ. That said, it has led to a wider ‘Japan premium’ (which is the cost of USD 3 month Libor for Japanese banks relative to other members of the Libor panel).
THE BASIS FOR OTHER MOVES
In comparison, the move higher in USD FRA/OIS and Libor/OIS, as well as a gradual but significant rise in 3 and 6 month USD Libor since mid-year, has been gentler. The move in EUR cross-currency basis (see Figure) 1 has come at a time when European banks have been under the spotlight. This unwanted introduction of a systemic threat has augmented the current demand for USD funding.
The basis has moved to the most negative level (highest cost for USD funds) since the European sovereign crisis period in 2012. Both prior to this period and since, central banks have introduced a number of measures to allow for USD liquidity in times of stress.
After a reasonably steady period, the basis has dropped from -25bp to -59bp since mid- September. The spread remains a long way from its historic lows of -210bp in 2008-09 and the -160bp level seen in 2011.
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<img src="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%205.27.38%20PM.jpg" alt="">
The demand for USD via the ECB's 1 week funding mechanism has also seen a sharp rise. Last week’s auctions for 1 week USD funding saw just under USD6.4bn awarded to twelve banks. This was the largest amount requested since 2014.
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<img src="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%205.27.48%20PM.jpg" alt="">
In the FRA markets, the modest move wider for EUR FRA/OIS has not been matched by the sharper USD move. This suggests that concerns over European banks have not yet shown up in funding for EUR. In fact, the 3 month Euribor/OIS spread is little moved and is at multi-year lows. We believe any stresses are likely to show up in the USD funding markets – rather than in EUR.
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<img src="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%205.27.57%20PM.jpg" alt="">
A RISING TIDE
The single currency basis market, at least for USD, has steepened sharply in the last year and has risen significantly higher than the levels seen during the 2012 European crisis. Similarly the USD 3s/1s basis curve has steepened to the highest level since 2009. 3s/1s sits at 25bp, around 3bp higher than what it reached in the European crisis. In the last few weeks, domestic USD basis has stabilised at these elevated levels.
Looking at the forward curves for single currency basis, it would appear that the peak for the 1 year basis has been set and will begin to match the forwards. The risk to this view would be a sustained period of higher USD funding costs and increased market expectations for Fed hikes.
In time, such an outcome should narrow the 1 year 6s/3s and 5 year 6s/3s basis, driven by a rise in the latter.
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OUTLOOK FOR FUNDING POST US MONEY MARKET REFORM
US money market funds now have less than ten days to comply with the new rules governing their operations. As Figure 6 shows, total holdings in prime funds are around USD600bn. While we expect some balance to be retained in the funds that choose to hold credit assets, there is likely to be further reduction in the coming days. This should, all things being equal, push USD Libor and USD Libor/OIS higher and wider.
It is worth noting that while the larger shifts in Libor have reflected a replacement premium for USD bank funding, corporate borrowers are also affected as they will need to source alternate means of funding. These may come via bank revolver credit facilities or through the term market as borrowers.
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<img src="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%205.28.15%20PM.jpg" alt="">
After the full implementation on 14 October, we expect markets to stabilise and for the Libor rate to reflect more cyclical news around the banking sector as well as the eventual addition of a premium or reflect market-based expectations of a Fed rate hike in December.
We also expect to see an increase in the issuance of term debt for banks as the ability to use short-term funding comes to an end. This more expensive method of borrowing also comes at a time when other regulatory requirements will be placed on the market.
WHAT TO WATCH
The key variables to watch will be the use of FX USD swap lines at the various central banks (primarily the BoJ and ECB). Domestic USD basis (6s/3s and 3s/1s) and 3 month JPY and EUR cross-currency basis are also important to gauge the demand for USD from non-US counterparties hedging loans, assets, and borrowings.
Bank credit spreads are an important gauge of the market’s perception of asset quality. While these have widened recently, they do not reflect significant concern. The CDS market, once a popular product in financial markets, has become an illiquid and poorly- traded instrument.
Lastly – and perhaps obviously – as the money market reforms are finalised, the USD Libor rate and spread to OIS are expected to rise a little further before stabilising and they represent a more realistic price for USD funding.
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Martin Whetton is senior rates strategist, ANZ. Katie Hill is strategist, ANZ. Both can be contacted <a href="https://www.anz.com/personal/" target="_blank">here.</a>
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jchancellor-FAypfDUnLy

What’s up in funding markets? ANZ's Martin Whetton and Katie Hill

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With no major economic developments in the last month, September quarter inflation due later this month and new Governor Philip Lowe at the helm presumably wanting to demonstrate a degree of policy continuity it was no surprise to see the Reserve Bank of Australia leave rates on hold at 1.5 percent at its October meeting. 
While Philip Lowe did make a few changes to the RBA’s post meeting Statement these don’t appear to signal any major changes in the RBA’s economic forecasts. In short the RBA continues to see the global economy continuing to grow at a below average pace, financial markets functioning effectively, the Australian economy continuing to growth, inflation expected to remain low and an appreciating $A complicating the adjustment in the economy. 
Two areas where there were more substantial changes in commentary were in relation to the labour market and the housing market. In terms of the labour market the RBA has highlighted significant variation across the country  in jobs growth and the divergence between part time and full time employment but seems reasonably relaxed about the employment outlook. 
On the housing market the RBA remains relatively sanguine but has acknowledged a strengthening in some markets recently (presumably Sydney and Melbourne), suggesting that it may be becoming a bit less relaxed.
The RBA seems to remain comfortable in waiting for the surge in apartment supply to cool property prices. Given the recent rebound in auction clearance rates, Sydney and Melbourne property prices continuing to growth solidly after huge gains over the last four years (6 percent in Sydney, 40 percent in Melbourne) and the risk that the apartment building boom will go way beyond the point of being healthy, my view remains that the RBA is a bit too relaxed about home prices and at least a bit of “jawboning” would be appropriate at present.
The fact that the RBA did not repeat its July meeting reference to upcoming inflation data – with September quarter inflation data due later this month – suggests that unlike in July its bias on interest rates is neutral.
However, we remain of the view that the RBA will cut rates again at its November meeting when it reviews its economic forecasts after the release of the September quarter inflation data in late October. The near term risks to inflation are on the downside thanks to competitive pressures globally and record low wages growth domestically and the $A is still too high and at risk of further appreciation given the Fed’s endless delays in raising rates again.
However, with economic growth holding up very well, commodity prices and national income looking like it has bottomed and the new Governor perhaps preferring a period of stability, this is a close call and is critically dependent on seeing a lower than expected September quarter inflation result. Either way a cut in the cash rate to 1 percent or below and the adoption of quantitative easing remains very unlikely in Australia.
<a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.
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RBA a bit more realistic on the property market: Shane Oliver

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The first meeting under the leadership of Philip Lowe has seen the Reserve Bank leave the cash rate on hold at 1.5 percent. 
<a href="https://mozo.com.au/" target="_blank">Mozo.com.au</a> director Kirsty Lamont has shared the five must know figures after October’s rate decision:
<img src="/images/2016/10/05/17%20bps.png" alt="">
 
The cash rate was left unchanged but prospective homebuyers can still bag a better deal this spring property season with 22 lenders dropping their variable rates last month by an average of 17 bps. 
<img src="/images/2016/10/05/3.59.png" alt="">
 
Fixed rates have also continued to come down with the top rate for one, two and three year terms now at 3.59 percent.
<img src="/images/2016/10/05/13737.png" alt="">
 
Borrowers are advised to make the most out of the low interest rate environment after Mozo calculated that the average borrower could save $13,737 over the life of the loan if they kept their repayments the same since the May rate cut.  
<img src="/images/2016/10/05/28.png" alt="">
This is how many providers slashed term deposit rates last month with some of the biggest cuts made by CommBank who scaled back their 1 and 2 year offers to almost exactly where they started in July.
 
<img src="/images/2016/10/05/27.png" alt="">
The value of at-call savings accounts has continued to erode with 27 providers cutting rates last month alone, compared to just one provider that increased rates.    
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jonathanchancellor-7SQnKwU6yx

Cash rate left on hold for October: Mozo’s five need to know numbers

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The Reserve Bank has left the cash rate at a record low of 1.50 per cent. The Reserve Bank is expected to await the September quarter inflation data in late October to decide the next move in rates.
What does it all mean?
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<li>Will the Reserve Bank Cut rates again? Reserve Bank Governor Philip Lowe raised doubts on future rate cuts when giving testimony just over a week ago. “The global sense is that monetary policy is not working as effectively as it might have in previous years. I think there are three possible responses to that. The one we have been doing is to just do more monetary policy: if it is not working, do a bit more until it does work. This is why we have found ourselves in some countries with interest rates in negative territory and unprecedented balance sheet expansion. You can keep doing more of something in the hope that it finally works, and my judgement is that that has not been particularly useful.”</li>
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<li>So it is now a case of waiting for the inflation data on October 26. Growth in underlying inflation in the quarter would need to be 0.4 per cent or below for the Reserve Bank to discuss cutting rates again.</li>
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The Reserve Bank has maintained the neutral policy stance. That means, the Reserve Bank is not leaning in favour of rate cuts or rate hikes.</div>
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<div class="column">There has been some additional text added to the statement, but nothing substantive. Additional information has been provided on the job market, highlighting the strength of part-time jobs compared with full-time positions. In terms of housing, the RBA does note “Growth in rents is the slowest for some decades.” Perspectives on interest rates
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  The Reserve Bank has left the cash rate at 1.50 per cent. The previous rate cut was in August 2016 (25 basis points).
</li>
<li>  There have now been 12 rate cuts since November 2011, cutting rates from 4.75 per cent to 1.50 per cent.</li>
<li>  The Reserve Bank had previously lifted rates seven times from October 2009 to November 2010 – a total of 1.75 percentage points, from 3.00 per cent to 4.75 per cent.</li>
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What are the implications of today’s decision?
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<li>  Investors need to work on the premise that the low inflation/low interest rate world will be around for a while yet. And this is very much a global phenomenon. Consumers can buy goods whenever they want and wherever they are, keeping downward pressure on prices. So yield is still king when investors are assessing alternative financial assets.</li>
<li>  Note that Reserve Bank may continue to tolerate a low inflation outcome. Remember that the target band is expressed as a medium-term objective: “Both the Reserve Bank and the Government agree that a flexible medium-term inflation target is the appropriate</li>
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j.ballantyne1990-6AQqhLzZaK

Will the Reserve Bank cut rates again? CommSec's Craig James

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At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 percent.
The global economy is continuing to grow, at a lower than average pace. Labour market conditions in the advanced economies have improved over the past year, but growth in global industrial production and trade remains subdued. Actions by Chinese policymakers have been supporting growth, but the underlying pace of growth in China has been moderating. Inflation remains below most central banks' targets.
Commodity prices have risen over recent months, following the very substantial declines over the past few years. The higher commodity prices have supported a rise in Australia's terms of trade, although they remain much lower than they have been in recent years.
Financial markets have continued to function effectively. Funding costs for high-quality borrowers remain low and, globally, monetary policy remains remarkably accommodative. Government bond yields are near their historical lows.
In Australia, the economy is continuing to grow at a moderate rate. The large decline in mining investment is being offset by growth in other areas, including residential construction, public demand and exports. Household consumption has been growing at a reasonable pace, but appears to have slowed a little recently. Measures of household and business sentiment remain above average.
Labour market indicators have been somewhat mixed. The unemployment rate has fallen further, although there is considerable variation in employment growth across the country. Part-time employment has been growing strongly, while growth in full-time employment has been subdued. The forward-looking indicators point to continued expansion in employment in the near term.
Inflation remains quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.
Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 has been helping the traded sector. Financial institutions are in a position to lend for worthwhile purposes. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.
Supervisory measures have strengthened lending standards in the housing market. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments. Growth in lending for housing has slowed over the past year. Turnover in the housing market has declined. The rate of increase in housing prices is lower than it was a year ago, although some markets have strengthened recently. Considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities. Growth in rents is the slowest for some decades.
Taking account of the available information, and having eased monetary policy at its May and August meetings, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.
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po-LsXgBTHBmX

Housing turnover in decline: Governor Philip Lowe October 2016 RBA statement

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The RBA cash rate decision came out at 2.30 today with the decision to hold rates at 1.5 percent.
The board noted supervisory measures have strengthened lending standards in the housing market.
It also noted separately, a number of lenders are also taking a more cautious attitude to lending in certain segments.
"Growth in lending for housing has slowed over the past year.
"Turnover in the housing market has declined.
"The rate of increase in housing prices is lower than it was a year ago, although some markets have strengthened recently.
"Considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities.
"Growth in rents is the slowest for some decades."
CoreLogic head of research Tim Lawless said after two rate cuts earlier in the year, the Reserve Bank’s decision to hold the cash rate at their historically low level of 1.5 percent came as no surprise. 
"Housing market conditions were almost certainly one of the topics discussed at the board meeting, as well as the stubbornly high Australian dollar, an inflation rate that is well below the target range of 2-3 percent and a remarkably strong rate of GDP growth released for the June quarter," he said.
"From a housing market perspective, the commentary theme from the RBA has been one of slowing conditions, which has broadly been confirmed by the CoreLogic Hedonic Index which has shown the annual trend rate of growth across the combined capital cities is now well below double digits at 7.1 percent over the year ending September 2016. 
"A year ago capital city dwelling values were rising by 11 percent per annum. Importantly, while growth conditions in the housing market have slowed, Sydney and Melbourne continue to record strong capital gains, albeit substantially lower than a year ago. 
"Sydney dwelling values were up 3.5 percent over the September quarter and the Melbourne values were stronger at 5.0 percent growth over the quarter.  Higher housing supply levels and lower levels of affordability are likely to naturally dampen some of the upwards pressure in housing markets, however investor activity has once again been consistently rising since June and some of the smaller capital city housing markets like Hobart and Canberra have been showing signs of accelerating.
"Clearly, the housing market is diverse and low interest rates are only one factor that is influencing conditions.  
"The RBA is likely to be monitoring the housing market closely, looking for any signs of accelerating capital gains in the larger markets, or a ramp up in speculative investment activity. "
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RBA holds at 1.5 percent at October 2016 meeting

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Market experts and economists widely predicted the outcome of today’s board meeting —to pause the cash rate at 1.5 percent — but investors may lose out if slow rental market growth continues, according to a new survey by finder.com.au.
While all 33 experts and economists from the monthly finder.com.au RBA Survey accurately predicted the cash rate would hold for October 2016, further rate changes will likely be enforced in the coming months. 
One third of experts (11) believe the cash rate will plummet before the year closes out, while 25 percent (8) are forecasting a rate cut in November. Nine percent of experts and economists think the cash rate will fall in December this year. 
A further thirteen economists (39 percent) are predicting a fall within the first six months of 2017, while five (15 percent) are tipping a fall later in the new year. Just nine experts are forecasting a rate rise beyond October 2017. 
The vast majority (69 percent) of experts believe the cash rate won’t fall lower than 1.25 percent this cycle, while seven (24 percent) are expecting it to bottom-out at 1 percent. 
When asked whether home loan providers should start offering competitive, longer term fixed rate mortgages —similar to the 10 and 20-year fixed rate products seen in the United States —over a quarter (27 percent, 7) said lenders should provide longer fixed-term products, with the experts favouring 10 year home loans.
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Graham Cooke, Insights Manager at finder.com.au says many home loan customers value the certainty and security of fixed rate home loans. 
“The ability to lock in a competitive fixed rate for a specified term provides borrowers with the peace of mind in knowing that their repayments will remain unchanged for the duration of the term so they’re protected from interest rate rises,” he says. 
One expert from the finder.com.au RBA Survey —Shane Oliver of AMP —said Australian borrowers have been reluctant to take on short-term fixed rate mortgages in the past. 
“Generally speaking, Australians have been a bit wary of fixed rates even over 3 or 5 years so I suspect there may not be a lot of demand for fixed rate 10 or 20-year mortgages,” he said. 
Additionally, experts offered insight about whether the flat rental market could influence housing prices in Australia, and the implications this may have for investors. Over half (52 percent, 14) of experts believe slow rental market growth could affect housing prices, with many citing falling rental yields as making housing less viable for investors. 
Just five (19 percent) experts believe the housing market won’t be affected by slow growth in the rental market, while the remainder of respondents were indifferent. 
“An increase in housing supply has kept rents down across the country’s capital cities. This could see the housing market become less attractive for investors, but the government’s continued policy of negative gearing could potentially ease this effect by reducing investor risk,” he said. 
Here’s what our experts had to say: 
Jordan Eliseo, ABC Bullion, Chief Economist (Hold): "We don't think the changing of the guard at the RBA alters in anyway the future path of monetary policy, but the board will be happy to sit tight for now, and monitor incoming data before making a cut in either late 2016 or Q1 2017." 
Shane Oliver, AMP Capital, Head of Investment Strategy and Chief Economist (Hold): 
"Not enough has changed since the last rate cut in August and the RBA is likely waiting until the September quarter CPI release prior to the November meeting before deciding to move again." 
Garry Shilson-Josling, Australian Associated Press, Chief Economist (Hold): "For the RBA, it's a matter of 'so far, so good'. And there [is] obviously increasing scepticism at the RBA of the effectiveness of further cuts: if there's a problem, it's not that interest rates are too high." 
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Darryl Gobbett, Baillieu Holst Ltd, Chief Economist (Hold):"Easing trend still in place with inflation expected to go lower and $A higher than desired but cuts to come in a considered fashion." 
Richard Robinson, BIS Shrapnel Senior, Economic Forecaster (Hold): "No need to cut rates when unemployment rate steady and economic growth currently sufficient to keep it steady. Plus RBA needs to let [the] housing market cool further." 
Michael Blythe, CBA, Chief Economist (Hold): "[The RBA are] waiting for Q3 CPI data at the end of October." 
Savanth Sebastian, CommSec Economist (Hold):"RBA comfortable on the sidelines. Waiting on further data to see how the economy is tracking and also next round of inflation data." 
Dr Andrew Wilson, Domain Group, Chief Economist (Hold):"Wait and see impact following recent cuts – also awaiting September quarter inflation data out next month. Will be also alert to recent sharp house price increases in Sydney and Melbourne." 
Scott Morgan, Greater Bank, CEO (Hold): "Recent RBA commentary suggests that rates will remain low but not necessarily go lower. There is no new data to warrant a further rate cut." 
Mark Brimble, Griffith University, Professor - Finance (Hold): "Bias remains to rate reduction, however the new RBA board will likely want to hold for a few months given the raft of factors in play at the moment." 
Peter Haller, Heritage Bank, Treasurer (Hold):"The RBA will wait to see how the May and August rate cuts will impact on inflation before it considers moving the cash rate again." 
Shane Garrett, Housing Industry Association, Senior Economist (Hold) : "Economic growth is moving in the right direction. The RBA will wait and see how August's rate cut works before another is made." 
Robert Montgomery, Infrastructure Partnerships Australia, Chief Economist &amp; Head of Policy (Hold):"The RBA will hold rates at 1.5% and wait for further signs of change before cutting rates again. The effectiveness of monetary policy to stimulate inflation and broader economic activity is diminishing, so we won't see a rate cut in October, rather we will see growing consensus that the way forward is through fiscal policy measures, such as investment in public infrastructure." 
Michael Witts, ING Bank Treasurer (Hold) :"No significant further information [has been] released to allow the [RBA] to consider a change in the cash rate." 
Alex Joiner, IFM Investors Chief Economist, IFM Investors (Hold) :"There is no catalyst in the data flow domestically or the environment globally that warrants any move." 
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Leanne Pilkington, Laing+Simmons, Managing Director (Hold) : “In the past week alone there’s been reports that the housing market is cooling, and another ranking Sydney among the most at risk globally in terms of a housing bubble. The reality is much less dramatic and we believe leaving interest rates unchanged is the most appropriate course.” 
Lynne Jordan, Liberty, General Manager - Risk (Hold) :"As the RBA holds the official cash rate again this month the public should turn to the government and ask what other form of stimulation can kick start the economy. Whether that is investment in infrastructure, the public sector or incentives for the private sector – the economy needs something more than another rate cut to pick up. Despite the fact that unemployment is at a three year low, and commodity prices are still showing signs of improving, another rate cut will still happen – likely at the start of 2017. " 
Stephen Koukoulas, Market Economics, Managing Director (Hold) :"Rates already stimulatory and recent data have been generally fair. No urgent need to adjust rates." 
Michael Yardney, Metropole Property Strategists, CEO (Hold) : "Interest rates are likely to remain on hold, with our housing markets easing and economic growth remaining in line with expectations." 
Emily Dabbs, Moody's Analytics, Economist (Hold) : "The central bank will likely wait to see how inflation responded to monetary easing earlier in the year before making any decision to ease further." 
Christopher Schade, MyState Bank, Economist (Hold) : "The most likely scenario seems to be one where the RBA remains on hold for at least the remainder of 2016 as it waits for further information around domestic and global developments. The domestic economy is performing in line with expectations, and an anticipated US rate hike in December should help take some heat out of the Australian Dollar. There does not appear to be a compelling reason for further monetary easing at this point." 
Saul Eslake, Economist (Hold) :"RBA is still evaluating the impact of last two rate cuts in May and August." 
Alan Oster, NAB Chief Economist (Hold) :"RBA still looking at the results of recent changes to rates. [The] focus is on low inflation not growth." 
Jonathan Chancellor, Property Observer, Editor (Hold) :"There's no prospect the new RBA Governor would make any move at his first meeting in the role." 
Matthew Peter, QIC, Chief Economist (Hold) : "With markets taking the US Fed and Bank of Japan decisions in their stride, the RBA will now remain on hold for the rest of 2016. In the new year, it must weigh up developments in domestic inflation and the exchange in its decision to stay on hold or whether to cut again by 25bps." 
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Noel Whittaker, QUT, Adjunct Professor (Hold) : "The incoming Governor has just stated that dropping rates anymore may be pointless." 
Angus Raine, Raine &amp; Horne, Chairman (Hold) :"[The rate] will most probably lower before Christmas." 
Christine Williams, Smarter Property Investing, Founder (Hold) : "The retail sector has had a boost in spending and the unemployment rate has had a slight reduction." 
Janu Chan, St George Bank, Senior Economist (Hold) : "The RBA has just lowered the cash rate in May and August, and will take a bit more time before moving again. Recent commentary is also suggesting that the RBA is not in a hurry to move rates and it would be likely to wait until key CPI data released in late October." 
Steven Milch, Suncorp Group. Economist (Hold) :"No clear evidence that growth or inflation are undershooting latest RBA forecasts." 
Brian Parker, Sunsuper, Chief Economist (Hold) :"No new news on inflation or wages since last rate cut, and RBA has signalled it's happy with the cash rate where it is." 
Nicki Hutley, Urbis, Director and Chief Economist (Hold) : "The economy is growing at around trend. While inflation is lower than optimal, it is still consistent with a target band of 2% to 3% ‘over time’.” 
Other participants: 
Bill Evans, Chief Economist, Westpac (Hold). 
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No move at October RBA meeting: finder.com.au

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The Reserve Bank Board meets next week on October 4. There is little prospect of the Board deciding to move rates. 
Since rates fell to 3% in December 2012 all six subsequent cuts have been in the February/May/August months. 
Those months, along with November, allow the RBA to respond to fresh information on inflation – printing quarterly usually around one week before the Board meeting. 
Those months also coincide with the quarterly Statement on Monetary Policy where the Bank releases revised forecasts for growth and inflation. 
Forecast changes at that time are usually used to justify the decisions either revealing significant revisions to growth or inflation forecasts. Based on this recent practice it would be extraordinary to see a policy change in October. 
This meeting also marks the first time in the Chair for Governor Lowe. 
I have written extensively about the need for the new Governor of the Reserve Bank to adjust the inflation target from 2-3% to 1-3% to reflect the reality of lower global inflation relative to the mid-1990’s when the target was originally successfully adopted. 
However, as noted at the time, I held out little hope that the new Governor would take my advice. Accordingly I was not surprised to see last week’s announcement that the target had been “confirmed” as 2-3%.
However there has been a significant change from “on average over the cycle” to “over time”. The Governor also emphasised in his Statement to the House of Representatives last Thursday that “the main drafting change is to make the link between monetary policy and financial stability a little more direct”.
If we weigh those two changes together they go some way to achieving the objective that I was most concerned about. 
My concern was that the new Governor might, when confronted with an impossible task of lifting inflation to above 2.5% in order to “average” 2.5% over the cycle might unnecessarily impact asset markets. By using the vague term “over time” and linking policy directly to financial stability (read asset markets) he has allayed much of my concern on that issue. 
Markets are likely to eventually scale back prospects for further rate cuts given these developments. 
We should not be surprised that this new Governor has chosen that approach. And we should certainly not dismiss this change in approach as “window dressing”. 
Every great professional has a seminal piece of work that they can refer to as a “defining moment”. 
I would argue that such a time came for a young economist, Philip Lowe, who had been seconded from the RBA to the Bank of International Settlements in Basel in the early 2000’s. 
In July 2002 he published a paper in the BIS Working Papers series. 
He argued in his paper, that “financial imbalances can build up in a low inflation environment and that in some circumstances it is appropriate for policy to respond to contain imbalances.....while low and stable inflation promotes financial stability, it also increases the likelihood that excess demand pressures show up first in credit aggregates and asset prices, rather than in goods and services prices.
 Accordingly, in some situations, a monetary response to credit and asset markets may be appropriate to preserve both financial and monetary stability.” He further concluded that “greater co-operation between monetary and prudential authorities is important, not just in management of crises but also in preventing their emergence.” (Philip Lowe and Claudio Borio, BIS Working Papers, no. 114, July 2002).
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Around that time the US housing market was beginning to “stir”. Chairman Greenspan had been cutting the Federal Funds Rate in the face of weak inflation. 
The Federal Funds Rate eventually bottomed out at 1% by June 2003 (a year after Lowe’s paper was published). When Greenspan eventually got around to lifting the Federal Funds Rate in June 2004 he moved at a leisurely and predictable 0.25% per meeting until June 2006 when the Federal Funds rate peaked at 5.25%. 
In Greenspan’s defence it has been argued that lifting the Federal Funds Rate from 1% to 5.25% over 2 years should have had more traction with the bond market – the US 10 year rate only increased from 4.6% to 5.2% over the period. This muted response has generally been attributed to Chinese purchases of US Treasuries over that period as China’s foreign reserves boomed. 
Mortgage rates in the US are priced off long bond rates rather than the Federal funds rate so the response in the mortgage market to Greenspan’s policy was muted. However, if policy had been more pre- emptive, less orderly and predictable the traction with the bond market may have been much more effective. 
Greenspan had clearly ignored the signals which had been emphasised in Lowe’s work – over the 4 years from end 2000 to end 2004 US house prices (Case Schiller Index) had lifted by 46%! 
Greenspan’s response to critics who noted the build-up in pressures particularly in the US housing market was that his objective was to maintain low inflation and if there were any associated imbalances in other markets he could “clean up” in the aftermath of any asset market disturbance. Young Lowe clearly disagreed. 
That paper, all those years ago, gives us a clear insight into the values of the new Governor. Arguably, if his warnings had been heeded by Chairman Greenspan back in 2002 (note that he only started rising rates in June 2004) the world may have avoided the Global Financial Crisis. 
We expect that these values will be an important driver of future policy. Lowe’s adjustment to the agreement with the Government to include financial stability has its origins in that paper all those years ago. 
The balance between driving towards a higher inflation target and over stimulating asset markets (including housing) will take on a sharper edge than we have seen in the past. He is also likely to be open to the use of further macro prudential tools (as highlighted in that paper) should that be seen to be necessary. 
Bill Evans, Chief Economist at Westpac
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Insights into the new RBA governor: Westpac's Bill Evans

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GUEST OBSERVER
Australia’s population is estimated to have clocked 24 million during the March quarter.
The annual growth rate has been tracking around 1.4 percent for the past six quarters. It is quite a bit lower than the pre-GFC boom years when population growth was running around 2.0 percent pa. But it remains high by OECD standards and is considered to be a strong pace.
Robust population growth means the economy needs to be expanding at a faster rate than otherwise to achieve full employment. That of course means that the economy has the capacity to expand at a faster rate too.
The slowdown in Australia’s population growth rate is a contributing factor to why most estimates of trend growth for the economy have been lowered in recent years – both Treasury and the RBA have lowered their estimates of trend growth to be in 2 3⁄4 to 3 percent range.
In the short run, however, the economy can expand  above that pace because; (i) the unemployment rate is above the non-accelerating inflation  rate of unemployment (NAIRU) and can move lower; and (ii) productivity in the resources sector will continue to lift as production comes on stream. 
<a href="/images/2016/09/27/Screen%20Shot%202016-09-27%20at%203.17.13%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/09/27/Screen%20Shot%202016-09-27%20at%203.17.13%20PM.png" alt="">
The major driver behind Australia’s population growth continues to be net overseas migration (NOM). However, its contribution to growth has come down over the past few years. Both sides of federal politics favour high levels of immigration to partially offset some of the effects from the ageing of the population. It also allows the economy to grow at a faster rate than would otherwise be the case which boosts aggregate demand. And it has significantly boosted demand for housing which flows through to higher prices. 
The ‘grey army’ – those aged 65 and over – has continued to grow as a share of Australia’s population. The growth of this age cohort underpins the structural decline in labour force participation. The ageing of the population has increased the dependency ratio (the age-to-population ratio of those typically not in the labour force) which underpins the need for fiscal reform, particularly tax policy. 
The detail
Australia’s population is estimated to have risen by 328k in QI (+0.4 percent). The lift takes the population to 24.1 million as at March 2016. NOM was 181k in the year to March 2016,  up from 177k in the year to March 2015. But well down from the peak of 315k in 2008. 
<a href="/images/2016/09/27/Screen%20Shot%202016-09-27%20at%203.18.28%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/09/27/Screen%20Shot%202016-09-27%20at%203.18.28%20PM.png" alt="">
Population growth is well above the national rate in Victoria. This underpins very strong employment growth in the Garden State, robust residential construction and strong State Final Demand (SFD). It does little for per capita SFD growth, however. The decline in mining investment and associated downturn in mining-related employment has contributed to a sharp slowdown in WA’s population growth rate. 
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Table 1: Population growth – QI 2016 
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Gareth Aird is economist at Commonwealth Bank and can be contacted <a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/gareth-aird/14/790/905" target="_blank">here</a>.
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Australia clocked 24 million people in the March quarter: CBA's Gareth Aird

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GUEST OBSERVER
These hearings have become a significant part of our calendar.
They are an important way through which the Reserve Bank is accountable to the public. I, myself, have been attending these hearings for more than a decade in various roles. I look forward now, in my new capacity as Governor, to continuing the tradition of productive engagement between the Committee and the Reserve Bank. You can be assured that I will do my best to answer your questions constructively and I look forward to regular hearings over coming years.
In my opening remarks, I would like to cover three sets of issues. The first is the monetary policy framework. The second is recent economic developments in Australia and elsewhere. And the third is the major projects that the Reserve Bank is currently undertaking.
The Monetary Policy Framework
Earlier this week, the Treasurer and I released an updated Statement on the Conduct of Monetary Policy. These statements – the first of which was released in 1996 – record the common understanding between the Reserve Bank and the Government on key aspects of Australia's monetary and central banking policy framework. They also set out agreed arrangements that promote the transparency and accountability of the Bank.
Over recent times, there has been quite a lot of public commentary in Australia and elsewhere about monetary policy frameworks. As you would expect, we are always studying the various arguments and have followed the recent debate carefully.
Our view is that a flexible medium-term inflation target remains the right monetary policy framework for Australia. This was reaffirmed in the new Statement on the Conduct of Monetary Policy, which has also been endorsed by the Reserve Bank Board. The goal remains for CPI inflation to average between 2 and 3 per cent over time.
The current framework was introduced in the early 1990s and has served Australia well. It provides the community with a reasonable degree of certainty about how the average level of prices is likely to change over the medium term. This helps people when making decisions about their savings and investments. Low and stable inflation remains an important precondition for strong and sustainable growth in employment and incomes.
It is worth emphasising that ever since the adoption of the current framework, the Reserve Bank has been a proponent of what is known as flexible inflation targeting. We have not seen our job as always keeping inflation tightly in a narrow range. We have not been what some have called ‘inflation nutters’. We have had a more balanced perspective, recognising that some degree of variability in inflation from year to year is both inevitable and appropriate.
In particular, a flexible medium-term target is the best way for us to deliver low and stable inflation in a way that contributes to our other broad responsibilities, including employment and preserving financial stability. We want to ensure that we deliver an average rate of inflation in Australia of between 2 and 3 per cent over time. It is in the public interest that we do this. It is also in the public interest that we pursue this objective in a way that promotes good employment outcomes for the country and preserves financial stability. In this way, we can best contribute to the economic prosperity and welfare of the Australian people as required by the Reserve Bank Act.
Our judgement, then, is that a flexible medium-term inflation target remains the right monetary policy framework for Australia. While there are arguments for other types of arrangements, none of them is sufficiently strong to move away from the current framework, which has helped promote stability and confidence in the Australian economy.
So the new Statement on the Conduct of Monetary Policy represents continuity with the previous Statement. The main drafting change is to make the link between monetary policy and financial stability a little more direct. In the previous Statement, monetary policy and financial stability were dealt with in separate parts of the document. Yet, over the years, financial stability considerations have been a factor in our monetary policy deliberations. Recently, for example, we have considered that a very quick return of inflation to the 2 to 3 per cent range at the cost of a material deterioration in the health of private sector balance sheets was unlikely to be in the public interest. The revised drafting recognises that our inflation target is pursued in the context of the Bank's broader objectives, including financial stability.
Recent Economic Developments
I would now like to turn to the recent economic data.
Our economy continues its transition following the boom in commodity prices and mining investment. According to the latest national account, GDP increased by 3.3 per cent over the year to June. This was a better outcome than was widely expected a year ago. It is also a little above most estimates of trend growth in our economy. Partly reflecting this above-trend growth, the unemployment rate has declined by around ½ percentage point over the past year. Again, this is a better outcome than was thought likely a year ago.
As is always the case, these aggregate outcomes mask significant variation across industries and regions. Those parts of the economy that benefited most from the resources boom are now experiencing difficult conditions, while other areas are doing considerably better. In these other areas, business conditions have improved, employment has increased and there are some signs of a modest pick-up in private investment.
Overall, the economy is adjusting reasonably well to the unwinding of the biggest mining investment boom in more than a century. This is a significant achievement. We are managing this adjustment partly because of the flexibility of the exchange rate and the flexibility of wages and through the support provided by monetary policy.
The story on income growth has been less positive, with growth in nominal GDP being disappointing. Over the past five years, nominal GDP has increased at an average rate of around 3 per cent per year. To put this number in context, between 2000 and 2007, nominal GDP grew at an average rate of 7½ per cent per year. This is quite a change. It goes some way to explaining the sense of disappointment in parts of the community about recent economic outcomes.
The main reason for the weak income growth over recent times is the large fall in the prices received for our exports. Since the September quarter 2011, export prices have fallen by around one-third. This fall, though, does need to be kept in perspective. Export prices remain considerably higher than they were in the 1990s and early 2000s, relative to the price of our imports. And of course, some of the fall in prices is because of increased production from Australia. So while we are receiving lower prices for our exports, we are selling more.
The recent news on commodity prices has been a bit more positive than it has been for a while. Over the past couple of months, the prices of some of our key exports have risen, partly in response to production cutbacks by high-cost producers elsewhere in the world. While it is difficult to predict the future, if these increases were to be sustained then we could look forward to the drag on national income from falling commodity prices coming to an end.
A second factor that has weighed on growth in nominal GDP is the slow rate of wage increases. This is a common experience across most industrialised countries at present, even those with strong employment growth. In Australia, the current rate of wage growth is the slowest in around two decades. It is part of the adjustment following the resources boom. Importantly, it means that many more people have jobs than would otherwise have been the case.
The low wage growth and lower commodity prices have meant that CPI inflation has been quite low over recent times. Inflation has also been held down by increased competition in parts of retailing and cost reductions in some supply chains. Slow growth in rents has also played a role.
The low inflation outcomes have provided scope for monetary policy to provide additional support to demand. The Reserve Bank Board decided to reduce the cash rate by 25 basis points in May and again in August this year. Lending rates have come down as a result. Deposit rates have, of course, also come down. The Board is very conscious that this means lower interest income for savers. Overall though, our judgement is that this easing in monetary policy is supporting jobs and economic activity in Australia, and thus improving the prospects for sustainable growth and inflation outcomes consistent with the medium-term target.
Looking forward, we expect the economy to continue to be supported by low interest rates and the depreciation of the exchange rate since early 2013. Importantly, the drag from the fall in mining investment will also come to an end. While mining investment still has some way to fall, our estimate is that around three-quarters of the total decline is now behind us.
Inflation is expected to remain low for some time, but then to gradually pick up as labour market conditions strengthen further.
One issue that has attracted a lot of attention of late is the housing market. The construction cycle has a bit more momentum than we expected earlier. This is adding to the supply of housing in the country, which partly explains the slow growth in rents. The rate at which established housing prices are increasing has also moderated, although there remain some pockets where prices are increasing briskly. Credit growth and turnover in the housing market are also lower than they were a year ago. Under APRA's guidance, lending standards have also been tightened. Overall, then, the situation is somewhat more comfortable than it was a year ago, although we continue to watch things carefully.
If I could now turn to the international environment.
The overall picture is as it has been for some time. The global economy is continuing to expand, but at a rate a little below average. Growth in global trade and investment is subdued. Inflation is also generally low and below most central bank targets. And interest rates in many countries are still very low.
One issue that continues to attract a lot of attention is the global monetary environment.
As we have talked about on previous occasions, at the global level there has been a very heavy reliance on monetary policy to stimulate growth. Some central banks have taken extraordinary actions, including large-scale money creation and setting negative policy interest rates. This has had global ramifications. While these actions have generally not been taken with the direct intention of influencing exchange rates, they have, inevitably, affected international capital flows and exchange rates. We have seen the effects here in Australia. The monetary expansion elsewhere and the low rates on offer overseas have meant that foreign investors have found Australian assets, with their relatively higher returns, attractive. In this way, what is happening elsewhere affects us here in Australia.
In the past 24 hours, there have been much-anticipated policy meetings by the Bank of Japan and by the Federal Reserve in the United States. These meetings followed a reassessment in markets about the potential for further stimulus from some major central banks, which saw bond yields rise from their historically low levels. In the event, the Bank of Japan and the Federal Reserve did not make material changes to their policy stances. In both cases, policy remains highly accommodative. The Federal Reserve's statement did note, though, that the case for an increase in the federal funds rate had strengthened.
Another area that continues to be watched closely is the unfolding transition in the economy of our largest trading partner, China.
As we have discussed previously, growth in China has slowed as China too makes a difficult economic transition: in its case, from growth being driven by large investments in industrial capacity and property to a more consumption-focused and service-based economy. China is also dealing with the consequences of a large build-up of debt in the private and state-owned business sectors. Overall, the latest available data suggest that there has not been a major interruption to growth, although this is partly because the economy is being supported by fiscal policy, including expenditure on infrastructure. So the Chinese authorities face a difficult trade-off: measures to address industrial overcapacity and high debt levels are necessary over the longer term, but are not helpful in the short term. We all have a strong interest in them managing this trade-off smoothly.
RBA Projects
Finally, I would like to say a few words about three of the major public-interest projects that the Bank has been working on recently.
You will – I hope – have noticed that a new $5 banknote was issued on 1 September. We are very proud of it. It has innovative security features, including the world's first clear top-to-bottom window. If you have had one in your hands you will have also noticed a tactile feature to assist the vision impaired. We anticipate releasing a new $10 banknote next year and then the banknote in highest circulation – the $50 – after that.
The rationale for introducing new banknotes is that we want to make sure that counterfeiting rates in Australia remain low. Our current banknotes have stood the test of time, but as technology has improved so have counterfeiting capabilities, and there has been some increase in counterfeiting. Our investment in new, high-tech banknotes will help ensure that Australians can continue to have confidence in our banknotes. As part of this project, we are also building a new large vault and a technologically sophisticated, more efficient cash processing facility in Craigieburn in Victoria, as our existing arrangements are running up against capacity constraints.
A second major project is the New Payments Platform. This project has been under the guidance of the Reserve Bank's Payments System Board. It is a cooperative effort between the Bank and the payments industry to modernise key parts of our electronic payments system.
When this work is completed we will all be able to make instantaneous payments to one another, with the money transferring between accounts in a matter of seconds, even if the funds have to move between banks. Addressing will be simplified; an email address or a mobile phone number will be able to be used instead of a payer needing to know an account number and BSB. We will also be able to send a lot more information with payments. The first payments using this new system should be able to be made late next year. As one part of our contribution to this project, the Reserve Bank is building the necessary infrastructure to allow funds to be transferred between financial institutions in real time.
A third major project is the renovation of our banking infrastructure. The Reserve Bank is the main transactional banker for the Australian Government. Like other financial institutions, we need to keep investing in technology so that we can provide a high level of service to our customers. As part of this work, we are developing systems so that the government can use the New Payments Platform to make, and receive, some of its payments.
So it is a busy time at the Reserve Bank.
Further details on these and other projects that we are working on will be available in the Bank's annual report, which will be tabled in parliament and released mid next month.
Philip Lowe is Governor of the Reserve Bank of Australia. 
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