Perth’s new apartment market recorded its strongest quarter of sales since Q4 2021, with 412 apartments sold in Q1 2026 and a record quarterly sold value of $537 million, according to Urbis’ latest Apartment Essentials results.

Urbis said the March quarter result reflects strong, highly product‑specific demand across both ends of the market, from more attainable projects delivering at scale, through to premium stock being absorbed by equity‑rich downsizers.&nbsp;

David Cresp, Partner at Urbis, said the key story in Perth is not demand, it is the market’s ability to convert demand into delivered housing.&nbsp;

“This is the strongest sales quarter since Q4 2021, and it reinforces that demand in Perth is real and it’s local,” David Cresp said. “But the task now is delivery, turning that demand into projects that can actually be built and completed.”&nbsp;

[smartcode_project:default project_id=110291 project_image_fid=302785]

<h2>Affordable product leads, premium demand remains resilient</h2>

Sales in Q1 were led by more affordable projects, with The Boulevard (SKS Group) recording 115 sales in the quarter, the presentation noting this is only the second time a single project has surpassed 100 quarterly sales. The project was able to offer more affordable housing product right next to a train station.&nbsp;

Palmyra West (Finbar) also delivered strong results with 28 sales in Q1, following 84 sales in Q4, with an average price of under $800,000, underscoring depth of demand for well‑located, attainable new stock.&nbsp;

At the premium end, Urbis said downsizer demand is continuing, with the results highlighting Romeo (Applecross, Finbar) recording 75 sales and reaching almost 50% sold in one quarter.

Jual (Shenton Park, Celsius Property) also posted a strong quarter with 28 sales, reaching 39% sold in one quarter.

Urbis noted that Perth apartment demand is not speculative, not investor‑led, and not uniform, describing it as localised, often equity‑driven and highly product‑specific, a pattern reflected in the polarisation between strong “attainable” performers and premium downsizer product.&nbsp;

[smartcode_project:default project_id=148957 project_image_fid=364102]

<h2>Prices underpinned by costs, and the delivery risk is growing</h2>

Urbis said pricing pressure is cost not demand‑driven: construction costs and delivery risk are now a central constraint, with the results noting build costs remain elevated and volatile, and that energy, fuel and labour uncertainty weigh on feasibility.

David Cresp said a growing challenge for private Build‑to‑Sell developers is simply securing a builder in the current environment.

“Developers are really feeling the pressure from a building market that was operating at capacity and securing a builder is challenging,” David Cresp said, adding that even where a builder can be secured, “trying to get to the price that makes the development financially viable is incredibly challenging in the current market.”&nbsp;

Urbis’ broader WA commentary also notes that industry remains at or above capacity with lot and housing creation, and that many builders are limiting new sales to manage stretched workforces and fixed‑price contract pressures, conditions that flow directly into apartment feasibility and delivery timing.

[smartcode_project:default project_id=108869 project_image_fid=317905]

<h2>Supply: improving later, but still constrained, and Perth lags eastern benchmarks</h2>

While near‑term supply remains constrained, Urbis’ forecast shows completions lifting “Supply is forecast to be back above 1,500 apartments per annum for the first time since 2019”, with 1,775 completions forecast for 2026, and volumes remaining above that level over the following years.&nbsp;

Looking further ahead, completions are forecast to reach 2,500 in 2028, with the report noting 32% of that total is social/affordable, reflecting the role of government‑supported delivery in rebuilding the pipeline.&nbsp;

However, Urbis said Perth remains behind comparable markets on pipeline scale. In a national comparison of projects under construction, the report shows under construction Perth Build‑to‑Sell (BTS) at 3,446 apartments versus the Gold Coast at 7,922. Mr Cresp said “The challenge for Perth is how to we grow the delivery pipeline”.

Urbis’ conclusion is that Perth’s market is increasingly defined by product discipline and delivery certainty, with the research identifying “delivery certainty is key” and calling out builder risk and procurement models as core success factors, alongside “timing and staging”.&nbsp;

Joel Robinson

Perth apartment sales hit strongest pace since late 2021 as builder capacity tightens

<a href="https://www.apartments.com.au/developers/sammut-developments">Sammut Group</a> has secured development approval for its latest Brisbane apartment project, marking the Sydney developer’s next step in expanding its Queensland pipeline following the success of its debut Gold Coast development, Coast.

The approved project at <a href="https://www.apartments.com.au/new-apartments/44-glen-road-toowong-qld-4066">44 Glen Road, </a><a href="https://www.apartments.com.au/developments/toowong-qld-4066">Toowong</a> will deliver a 15-storey riverfront apartment building with 42 residences, significantly increasing the scale of the site’s previous approval for a smaller luxury scheme. Designed by Bureau^proberts, the development will comprise a mix of predominantly four-bedroom and two-bedroom apartments positioned to maximise Brisbane River and city views.

Sammut Director Julian Sammut said the group had been actively searching Brisbane for several years before identifying Toowong as the right fit.

“Brisbane was the right step for Sammut,” Sammut said.

“With the success of Coast we thought we should definitely look to do more in Queensland alone. We then pushed up to look at Brisbane. We've been looking for I'd say two to three years actually and it was hard to find the right location.”

<img alt="Sammut makes Brisbane apartment play" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/f_auto,c_limit,w_1440,q_75/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/field/image/Screenshot%202025-12-23%20at%203.27.14%E2%80%AFPM.png?VersionId=dYAVIL7qdcGA8ojvkslSrLjczXFejSSx" />

Sammut said suburbs including New Farm and Teneriffe were considered before the group ultimately focused on Toowong due to its strong downsizer demographic and limited supply of developable riverfront land.

The site was acquired off-market after what Sammut described as a lengthy negotiation and planning process, with the developer pursuing an uplift to the original approval.

“We are DA approved now which is very exciting,” Sammut said.

“We've had our change approval come through and we've obviously doubled the height, 15 storeys plus rooftop. We've got 42 amazing apartments that are going to be coming to market soon.”

<img alt="Sammut makes Brisbane apartment play" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,dpr_2.0,q_auto:good/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202025-12-23%20at%203.27.26%E2%80%AFPM.png?VersionId=ohkRkY0dIZlqdfME2EZePsCQavRiBadE" />

Bureau^proberts said the design responds to Toowong’s evolving urban character, balancing contemporary apartment living with the area’s established residential identity.

“A place where traditional Queensland living has taken place for centuries; Toowong is seeing a shift of contemporary influence, commercial and retail hubs mixed with well-considered residential offerings – all the while maintaining its character and charm,” the architect noted in planning documents submitted to Brisbane City Council.

The architecture practice said the project’s form was shaped by its riverfront setting, flood considerations, neighbouring building scales, and view corridors.

“They said the mix of four and two-bedroom apartments capture the ‘fundamental qualities of Queenslander living,’ translated into the context of a contemporary subtropical building.”

The development sits just off Coronation Drive within walking distance of Toowong’s retail precinct and the upgraded Regatta ferry terminal, while also benefiting from proximity to the incoming green bridge connection to West End. Sammut said the accessibility and amenity offering were central to the site’s appeal.

The approval adds to growing residential activity along the Toowong riverfront, joining nearby projects including Consolidated Properties’ Monarch Residences and Spyre Group’s ARC Residences.

Sammut secures approval for debut Brisbane apartment development in Toowong

Developer Lanevick is heading back into Sydney’s apartment market after focusing more heavily on the luxury townhouse and terrace sector in recent years.

Lanevick, founded and directed by Steve Maroun, is expecting to receive approval in the coming months for a new apartment development in Gladesville, with the aim to launch it to the market later this year.

The 51-apartment project, designed by Studio Johnston, will comprise a mix of one-, two-, and three-bedroom apartments positioned toward the Hunters Hill downsizer market.

“Traditionally it’s been difficult for people in that market to downsize because there just hasn’t been the right product available,” Maroun said.

“We’re targeting buyers who might have 30 to 40 per cent of their house value sitting in the bank after downsizing.

“They still want good spacious entertaining areas, they still want quality design, but they also want flexibility and the ability to enjoy life a bit more after working hard for a long time.”

The project sits near Boronia Park and within close proximity to the Parramatta River foreshore, an area Maroun says offers more of a Hunters Hill lifestyle than a traditional apartment precinct.

“From a lifestyle perspective, it’s really more Hunters Hill than Gladesville,” Maroun said. “You’re close to the foreshore, close to parklands, and still connected back into the village precinct.”

From level four and above, apartments will capture water views&nbsp;toward Sydney Harbour. Communal amenity will include rooftop entertaining areas, wellness spaces, and a gym tailored toward owner-occupier buyers.

“We’ve really designed these apartments around that buyer coming from the Hunters Hill LGA and what they’re actually looking for in their next chapter.”

The proposed development has also been designed to respond to the changing character of the broader Gladesville town centre, where a growing number of mixed-use and residential proposals are expected to emerge over the coming years.

“Gladesville presented a rare opportunity to deliver a genuinely design-led residential project within an evolving lifestyle precinct, just moments from the growing Gladesville town centre, and we’ve approached the project with a strong focus on architecture, liveability and long-term community value,” Maroun said.

Maroun said Lanevick saw a first-mover advantage within the precinct as planning controls continue to evolve to accommodate greater housing density.

“We think there’s a real opportunity there that hasn’t really been serviced properly yet,” he said.

“There’s going to be a broader evolution of the whole Gladesville village precinct over time, particularly with more activation and mixed-use outcomes.”

The Venus Street proposal will include a commercial and retail component at ground level designed to contribute to that evolving streetscape activation.

“A big part of the thinking was how do you activate that area properly and create more vibrancy and amenity, which is what Hunters Hill has been looking for,” Maroun said.

Lanevick’s focus since 2020 has largely been on smaller-scale luxury townhouse and terrace developments. The developer recently completed Royale Randwick, also designed by Studio Johnston, where prices reached $3.65 million. The project was featured in the UDIA NSW 2026 Professional Development Prospectus and was also named a finalist for Development of the Year.

&nbsp;

Lanevick to cater for Hunters Hill downsizers with new Gladesville apartment development

Property developer One Living, backed by former Macquarie banker turned investment manager Chris Green’s investment firm, has unveiled plans to bring more institutional capital into housing to help address the national supply crisis.

The New York-based investor has focused his firm, GreenPoint Partners, on addressing the supply shortage hitting middle market housing in Australia.

It is backing the new One Living business to develop more than 1000 units along the eastern seaboard. The new firm is starting with a development on Mona Vale Road, on the border of Mona Vale and Pymble, in Sydney’s Northern Beaches, with around 140 apartments planned. They are eyeing off more sites across the city.

With cost pressures rising in the industry, One Living’s model is to be a vertically integrated developer-builder, so it can respond directly to the housing gap by removing the cost inefficiencies embedded in traditional residential delivery.

“We are building a platform designed to operate at scale and starting in a market where there’s a clear need for quality, attainable housing,” One Living joint managing director Joseph Scuderi said.

“It’s that missing middle – it’s that attainable end of housing… that’s what most Australians invest into and what Australians can actually afford.”

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="798dfa93-4941-4db6-a696-31e9dc18e81c" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.31.50%E2%80%AFPM.png?VersionId=mKBqi5C_DmeiXS.AtJkcR8LQIxqCqmFi" />

GreenPoint Partners brings years of experience assembling and scaling real estate operating businesses across major markets. And Green sees a big opportunity in Australia.

“For its size, sophistication and importance to the community, Australia’s living sector has remained largely under-institutionalised, which represents significant opportunity,” Green said. “GreenPoint identified that gap, assembled the right team, and is backing One Living to build a platform that is aligned to market needs.”

Green said being a builder-developer would give the company the capacity and flexibility it required to deliver reasonably-priced homes.

“We want it to be at that attainable level; not super high end luxury but at that attainable level,” he said.

<img alt="Mona Vale" data-entity-type="file" data-entity-uuid="74a5344a-4b26-4d4a-ada3-056b1220be77" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-28%20at%202.32.15%E2%80%AFPM.png?VersionId=vY8hXHO4reBMdO8ZXMWCNtGZJofUPQ3j" />

&nbsp;

One Living will undertake a component of affordable housing in its schemes, which it will own and operate, and it could also run build-to-rent on some sites.

Green praised local policy settings.

“The NSW government is being very supportive, strategic and pragmatic in terms of how do we generate more supply of housing,” he said. “We think it’s actually positive for development and the bit that’s been lacking at that attainable level is that it’s lots of relatively small private developers, whereas we want to create an institutional platform.”

One Living is also&nbsp;looking at high-density projects and could take on more institutional funding in the future.

“The way we will be able to achieve economies of scale is through size,” Green added.

One Living enters Sydney's new apartment market with Northern Beaches site acquisition

It's been several years since there's been an opportunity to buy a brand new townhome in Melbourne's coastal suburb of Mordialloc. Even apartment developments in recent times have been few and far between in the area.

Local developer LDS Property identified the gap in new housing, securing a site on White Street, directly opposite&nbsp;Woodlands Golf Club Mordialloc. They've recently launched&nbsp;<a href="https://www.apartments.com.au/new-townhouses/wm-residences-mordialloc-102-white-street-mordialloc-vic-3195">WM Residences</a>, just 13 townhouses which they have already started building.

Projects by Buxton Director Heath Thompson, who is selling WM Residences, says the townhouses x that perfect middle ground be

"Mordialloc residents have had limited options to downsize within the suburb, often forcing them to look elsewhere despite long-standing ties to the area," Thompson says.

"With very little comparable new supply coming to market, projects like WM Residences are well placed, particularly as buyers look to capitalise on current conditions amid constrained supply."

[smartcode_project:default project_id=134646 project_image_fid=6109]

The development, designed by regarded architecture firm&nbsp;<a href="https://www.apartments.com.au/architects/ewert-leaf">Ewert Leaf</a>,&nbsp;adopts a deliberately restrained architectural approach, focusing on simplicity, durability and liveability rather than overt design gestures.

The boutique scale is central to the offering. With only 13 three-bedroom residences, each home is configured to prioritise functional layouts and everyday use, supported by private terraces and secure two-car garages.

Ewert Leaf’s design response leans into a calm, neutral material palette. Interiors are defined by oak flooring, white walls and soft finishes, creating a consistent and understated backdrop. The approach avoids trend-driven detailing in favour of longevity, with an emphasis on natural light and spatial clarity.

[smartcode_project:default project_id=134646 project_image_fid=6110]

Beyond aesthetics, the homes are designed to meet contemporary performance expectations. Each residence targets a minimum 6-star energy rating, incorporating double glazing, comprehensive insulation and all-electric Bosch appliances.

The project’s location supports a walkable coastal lifestyle, sitting within close proximity to Mordialloc’s foreshore, Main Street retail strip and the train station. Local cafés and dining venues, including Suburbia Deli and Hendriks Café, are within a short walk, reinforcing the area’s established neighbourhood character.

[smartcode_project:default project_id=134646 project_image_fid=6116]

While <a href="https://www.apartments.com.au/developments/mordialloc-vic-3195">Mordialloc</a> is often defined by its beach and pier, the project taps into other areas of day to day living, offering easy access to local food, casual dining and transport, rather than positioning itself purely as a lifestyle retreat.

WM Residences reflects a continued trend across Melbourne’s coastal suburbs towards smaller-scale, design-led townhouse developments, particularly on infill sites where proximity to amenity is already established.

With construction commenced prior to its market entry, the project aligns with a growing preference among buyers for developments with visible progress and defined delivery timeframes.

[smartcode_project_cta:default project_id=134646]

WM Residences fills gap in Mordialloc townhouse market

Rba Rate Decision

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At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.25 per cent. The Board took this decision to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target.
The outlook for the global economy remains reasonable, although the downside risks stemming from the trade disputes have increased. Growth in international trade remains weak and the increased uncertainty is affecting investment intentions in a number of countries. In China, the authorities have taken steps to support the economy, while addressing risks in the financial system. In most advanced economies, inflation remains subdued, unemployment rates are low and wages growth has picked up.
Global financial conditions remain accommodative. Long-term bond yields and risk premiums are low. In Australia, long-term bond yields are at historically low levels. Bank funding costs have also declined further, with money-market spreads having fully reversed the increases that took place last year. The Australian dollar has depreciated a little over the past few months and is at the low end of its narrow range of recent times.
The central scenario remains for the Australian economy to grow by around 2¾ per cent in 2019 and 2020. This outlook is supported by increased investment in infrastructure and a pick-up in activity in the resources sector, partly in response to an increase in the prices of Australia's exports. The main domestic uncertainty continues to be the outlook for household consumption, which is being affected by a protracted period of low income growth and declining housing prices. Some pick-up in growth in household disposable income is expected and this should support consumption.
Employment growth has been strong over the past year, labour force participation has been increasing, the vacancy rate remains high and there are reports of skills shortages in some areas. Despite these developments, there has been little further inroads into the spare capacity in the labour market of late. The unemployment rate had been steady at around 5 per cent for some months, but ticked up to 5.2 per cent in April. The strong employment growth over the past year or so has led to a pick-up in wages growth in the private sector, although overall wages growth remains low. A further gradual lift in wages growth is expected and this would be a welcome development. Taken together, these labour market outcomes suggest that the Australian economy can sustain a lower rate of unemployment.
The recent inflation outcomes have been lower than expected and suggest subdued inflationary pressures across much of the economy. Inflation is still however anticipated to pick up, and will be boosted in the June quarter by increases in petrol prices. The central scenario remains for underlying inflation to be 1¾ per cent this year, 2 per cent in 2020 and a little higher after that.
The adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities. Conditions remain soft, although in some markets the rate of price decline has slowed and auction clearance rates have increased. Growth in housing credit has also stabilised recently. Credit conditions have been tightened and the demand for credit by investors has been subdued for some time. Mortgage rates remain low and there is strong competition for borrowers of high credit quality.
Today's decision to lower the cash rate will help make further inroads into the spare capacity in the economy. It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target. The Board will continue to monitor developments in the labour market closely and adjust monetary policy to support sustainable growth in the economy and the achievement of the inflation target over time.
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jrobinson-rf4aSBido9

Soft property conditions: RBA Governor Philip Lowe's June 2019 meeting statement

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The Reserve Bank of Australia have cut the official interest rate to a historic low 1.25% at its June meeting.
It's the first time the cash rate has been cut since August 2016 when it went from 1.75% to 1.5%.
The Federal Treasurer Josh Frydenberg has personally urged the nation's biggest banks to pass on all the 0.25 percentage point cut in official interest rates.
CoreLogic head of research Tim Lawless said the move was widely expected, with the focus now no doubt turning to mortgage rates and how low they will go.
"Mortgage rates for owner occupiers are already around the lowest level since the 1960’s and lenders are generally expected to pass on most, if not all of the cash rate cut to mortgage interest rates. 
"Lower mortgage rates, together with the likelihood of lower borrower serviceability assessments if APRA delivers on a relaxation to the base serviceability rate later this month, as well as renewed confidence following the federal election, are likely to see an improvement in housing market activity. 
"However, with credit policies remaining tight, the stimulus of lower rates isn’t likely to be as effective in kick starting the housing market as what we have seen in the past. 
"Borrowers are facing much closer scrutiny on their income and expenses as lenders become less reliant on HEM (Household Expenditure Measure) benchmarks, and comprehensive credit reporting is providing lenders with greater transparency around borrower debt levels and credit standing. 
"Overall, the latest rate cuts together with lower serviceability assessments for borrowers and greater confidence following the federal election should help to support an earlier than expected trough in housing values, but we aren’t expecting a rapid reversal in house price declines due to ongoing tight credit policies and, more broadly, economic uncertainty as global trade tensions escalate.
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RBA cut official cash rate to a historic low 1.25% at June 2019 meeting

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Over 90% of experts and economists surveyed in Finder.com.au's RBA Cash Rate Survey predict a cut at the RBA's June meeting.
Some 32 out of 35 economists expect a cut, predicting a 25 basis point reduction.
Most economists surveyed predict further cuts, with 60% expecting a bottom rate of 1%, while there were 33% who believe there will be three cuts or more, predicting a bottom cash rate of 0.75% or lower.
Graham Cooke, insights manager at Finder, said the time has come for a cash rate cut. “We can be fairly certain of the direction the cash rate will take in June – the writing is on the wall," Cooke said.
"However, the questions we need to ask are: how much will they cut by, and how many cuts will follow this one?"
The majority (59%) of the experts surveyed predict two cuts this year, however one in five (22%) of respondents agreed with the likes of Westpac that there will be three rate cuts in 2019.
What the Finder experts said. 
Alison Booth, ANU (Decrease): "The Governor of the RBA has more or less announced there will be a fall. It is clear that the RBA were considering it before the election but for political reasons did not, as it would not do to be interpreted as a signal favouring either major party. The economic fundamentals now warrant a small change. Whether or not the banks follow through with a cut in their rates remains to be seen." Andrew Reeve-Parker, NW Advice Pty Limited (Decrease): "Spike in unemployment numbers will give the RBA confidence to move on interest rates. " Ben Udy, Capital Economics (Decrease): "The labour market has now joined the deterioration in the rest of the economy. " Christine Williams, Smarter Property Investing (Hold): "Our employment is steady" Clement Tisdell,  Economist (Decrease): "Statements by the Reserve Bank Governor" David Robertson, Bendigo and Adelaide Bank (Decrease): "Latest jobs data slightly weaker, in contrast to RBA expectations in their SOMP, so (as indicated in Philip Lowe's recent speech) enough reason for some fresh monetary stimulus." Debra Landgrebe, Gateway Bank Limited (Decrease): "This view is based off recent comments by the Governor of the Reserve Bank that indicated a shift towards quantitative easing." Dr Andrew Wilson, My Housing Market (Decrease): "RBA has clearly signalled its intention to cut rates and with its nominated sensitivity measure of unemployment now on the rise is set act.     The release of the ABS GDP data for the March qtr the day following the rate announcement will encourage the Bank to cut to be seen to be acting to stimulate the economy ahead of what is likely to be yet another underwhelming result for the economy. " Geoffrey Harold Kingston, Macquarie University (Decrease): "Reiterating my last response, the RBA should cut by 25 basis points this Tuesday. Breakeven inflation is just 1.2 % pa, &amp; f/t employment growth was negative in the last ABS survey." Jacqueline Dearle, Mortgage Choice (Decrease): "There is no question that cash rate cuts are on the cards this year and there’s enough evidence to suggest that the first rate cut will occur in June.  We have seen some deterioration in the labour market, with the ABS' most recent Labor Force data revealing the unemployment rate grew to 5.2% in April. The stubborn inflation rate is sitting at 1.3%. The combination of these key economic measures suggests a decrease to the cash rate would be appropriate this month.” John Caelli, ME Bank (Decrease): "It’s likely the RBA will cut the cash rate in June due to an ongoing combination of factors, in particular, some weakening in employment growth, weaker GDP data and the below target inflation rate." John Hewson, ANU (Decrease): "Economy slowing faster than they thought" John Rolfe, Elders Home Loans (Decrease): "The RBA announcement this week has confirmed that unemployment sub 5% with low inflation can support at least 50 bps off rate cuts." Jonathan Chancellor, Property Observer (Decrease): "The board has observed the Australian economy has slowed." Leanne Pilkington, Laing+Simmons (Decrease): "The Governor flagged a cut and there’s little point postponing what the RBA deems inevitable. With prices approaching the bottom of the cycle, interest rates potentially declining further, and an easing on lending restrictions, the signs point to the emergence of a buyer’s market in the residential sector." Malcolm Wood, Baillieu (Decrease): "Lowe's speech guided to a rate cut- slowdown, lower inflation, rising unemployment, falling NAIRU and forecast assumes 2 rate cuts" Mark Brimble, Griffith Uni (Hold): "Bias is clearly to the easing, however the RBA may choose to wait for the new financial year for a range of reasons including the finalisation of the budget bills (which get through and which don't) and how geo-political issues play out on the global stage and markets." Mark Crosby, Monash University (Decrease): "RBA likely to cut on back of latest inflation number. Only possible alternative is that they announce a change to the inflation target, but this is unlikely without some more public discussion." Mathew Tiller, LJ Hooker (Decrease): "Given inflation and wages remain stubbornly low, combined with a softer outlook for employment market. We expect the RBA to cut the official cash rate to 1.25% at its June board meeting. This rate cut combined with the return of a Coalition government, APRA easing lending restrictions and the new first home buyer deposit scheme will see confidence return to property markets and in-turn increase transaction activity." Matthew Peter, QIC (Decrease): "The RBA has finally acted in a decisive manner, signalling its intent to cut the official cash rate at its June meeting. It is now incumbent on the RBA to give clear guidance on the future path of monetary policy beyond its June meeting." Michael Witts, ING (Decrease): "Such a move is consistent with the recent comments by the Governor. the economy has the capacity to grow at a stronger rate and lower interest rates will achieve such an outcome." Michael Yardney, Metropole Property Strategists (Decrease): "The RBA has backed itself into a corner. The latest unemployment stats should now force its hand." Nerida Conisbee, REA Group (Decrease): "I've gone against popular opinion and have held off calling a cut until now. I think this month will be it. While there has been a lot of poor economic data coming out, it looked like the RBA were holding on to the low unemployment rate as a sign that things were about to improve. With the unemployment rate ticking up in April, I think this will be enough impetus to make a decision to cut." Nicholas Frappell, ABC Bullion (Decrease): "A slight increase in unemployment and 'underemployment' added to the weak Q1 CPI figure, which was then compounded by a 1.90 pct. fall in the Q1 'construction work done' number. Given that the election is behind us, and the RBA has evidence of both weak inflation and worsening jobs data, the RBA has scope to cut by at least 25 bp in June. " Nicholas Gruen, Lateral Economics (Decrease): "Their last set of minutes made up excuses not to cut during the election campaign. So they'll cut. They should cut by more but I doubt they will." Noel Whittaker, QUT (Hold): "I am probably wrong but I think dropping would be a very bad policy - hope the bank realises that." Peter Boehm, KVB Kunlun (Decrease): "My previous thinking was that interest rates would start coming down during the second half of the year. However, recent events strongly indicate a fall in rates will likely occur sooner than previously thought. Chief among these is the RBA Governor's public announcement that an interest rate cut is on table at the next meeting. That's a pretty obvious indicator of where rates are headed and when. This announcement was predicated on a stuttering economy and the RBA's apparent view that the economy can support an unemployment rate below 5% and low interest rates simultaneously, without causing serious upwards pressure on inflation. Combine this with APRA's relaxation of the minimum 7%  floor when assessing borrowers' capacity to pay, the returned Government's planned reduction in tax rates and calls for increased infrastructure spending, there is a clear expansionary focus which would be supported by reducing interest rates and consequently, the cost of borrowing." Peter Haller, Heritage Bank (Decrease): "With inflation undershooting the target range, credit growth low and unemployment rising, now is the time for the RBA to provide some monetary stimulus." Shane Oliver, AMP Capital (Decrease): "Growth has slowed, inflation has slowed well below target, unemployment looks like it is now starting to rise when it needs to be falling to get inflation back up and the RBA has recognised all of this (and moved to an easing bias)" Stephen Koukoulas, Market Economics (Decrease): "Low inflation and weak economic growth." Sveta Angelopoulos, RMIT University (Decrease): "Given the election results (and thus the policy implications), the proposed changes by APRA and the slight improvement in housing market, this may be an ideal time for a reduced cash rate to have an effective impact on the economy." Tim Nelson, Griffith University (Decrease): "Most recent comments have been aroundunemployment being targeted through expansionary monetary policy without impacting inflation." Tim Reardon, Housing Industry Association (Decrease): "The accelerated downturn in new dwelling construction activity." Other participants: Bill Evans, Westpac (Decrease)
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Over 90% of experts and economists predict cut: Finder's RBA Cash Rate Survey

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Home loan comparison website RateCity.com.au expects the Reserve Bank to cut rates at the June meeting, and then again as early as August.  
RateCity’s research director Sally Tindall said cutting rates was no longer an “if’, but “when” scenario for the RBA.
“Governor Lowe has been extremely hesitant to cut the cash rate, but he’s working against a backdrop of rising unemployment, falling inflation and less than impressive wages growth,” she said.
“If he doesn’t cut tomorrow, he’ll catch much of the nation by surprise.
“The decision seems close to a foregone conclusion. The one thing that could hold him back is the fact that he only has a few trump cards left in his hand before he bottoms out, but he’s made it very clear he’s prepared to play."
RateCity's forecast for two cuts would take the official interest rate down to 1 percent.
If the cash rate is cut to 1 percent, owner occupier variable home loan interest rates are set to drop below 3 per cent, while investor rates could fall as low as 3.24 per cent.
Click here to enlarge.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/6/4/Home-loan%20saving%20rates.jpg" alt="">
“If a rate cut does happen, there will be pressure on the banks to pass it on in full.
“Banks have been hiking rates since 2017 due to the high cost of funding, but this pressure has dissipated, so the next RBA cut should, in theory, be passed on in full.
“That said, it’s been a tough year for the banks in a slowing home loan market, so some lenders may choose to hold part of the cut back,” she said.
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RateCity predict June and then August rate cut

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EXPERT OBSERVER
There is a wide-spread belief that Reserve Bank Governor Lowe’s speech on 21 May clearly indicated that the RBA are set to cut official interest rates on Tuesday 4 June when they next meet.
While I (and the interest rate futures market and the overwhelming majority of economic commentators) believe that is still the most likely outcome, I can see a scenario whereby the RBA once again keeps rates on hold.
People love to tell me that housing isn’t the economy, and they’re right it isn’t however, it is the largest single asset class in the country and thereby pretty important to the health of the economy. Over recent weeks there have been a number of changes that have been overall a positive for the housing market going forward:
There was no change of government at the federal election. Whether you believe that changing the rules around negative gearing and the capital gains tax discount would have a big impact on the market or not, those proposed changes did inject a level of uncertainty into the market.
While the Labor Party was expected by most to win the election, the aftermath of a Coalition win seems to have seen a level of confidence returning to the market.
Dwelling value declines were already slowing but now lenders are reporting much higher levels of mortgage demand and auction clearance rates last week lifted to their highest level nationally since mid-May last year and in Sydney they increased to their highest level since April last year. 
APRA has signalled they are looking to change serviceability calculations on new mortgages.
Ultimately it will mean that some people that previously weren’t able to borrow will be able to and those that could already borrow will potentially be able to borrow more.
Again, these changes aren’t yet live but once implemented, easier access to a housing loan should support a lift in market activity and help to provide a floor under housing prices.
The RBA flagged that interest rates would be reduced. After official interest rates have remained on hold for 33 months, Governor Lowe dropped his biggest hint yet that interest rates will be reduced in June during his speech on the 21 May.
Interest rate cuts put more cash in mortgage holders pockets, if someone is struggling to repay their mortgage they can contact their banks and ask for a reduction in repayments (assuming lenders pass on a cut which is highly likely) and for those that choose not to reduce their repayments they end up paying back more of the loan principal thereby paying down debt quicker.
Furthermore, a lower cash rate typically means lower interest rates on savings accounts, thereby reducing the incentive to save and increasing the incentive to spend.
All three of those items are overall a positive for the housing market. It is important to note that items two and three have not yet happened so anyone now buying could have bought pre-election but chose not to.
To me that indicates a concern around policy changes proposed by the party perceived as most likely to win the election. So with the largest asset class looking more positive why would the RBA choose to cut now? It’s not a cut about housing it is a cut related to economic growth and inflation.
Headline inflation was unchanged over the March quarter and just 1.3% higher over the year.
The RBA’s preferred measure of underlying inflation was 0.2% over the quarter and 1.4% higher over the year, both drifting further away from the 2% to 3% target range. Underlying inflation has been allowed to sit below the target range since December 2015 and hasn’t hit the midpoint (2.5%) since September 2014.
Gross Domestic Product (GDP) or economic growth was recorded as 0.2% over the December 2018 quarter its lowest growth rate since September 2016. On an annual basis, GDP rose 2.3% which was its slowest rate of growth since June 2017.So we have low inflation and sluggish economic growth, which has been the case for some time but both have weakened further in their recent releases.
The RBA has repeatedly stated the main reason for not cutting interest rates is the strength of the labour market however, it has now also weakened. On a seasonally adjusted basis, the unemployment rate in April 2019 was 5.2% having risen for two consecutive months and the highest unemployment rate since August 2018.
Although the unemployment rate has risen, annual jobs growth has increased to 2.6%, its fastest growth rate since June 2018 and the workforce participation rate at 65.8%, the highest it’s been since January 2018.
So while the unemployment rate has weakened, more people are in work or looking for work and job creation has accelerated. We should note that unemployment is typically a lagging indicator and measures of job advertisements are showing slowdown over recent months.
Given all of this, I still believe than an interest rate cut on June 4 is the most likely scenario but I won’t be surprised if the RBA, which has taken a slow and measured approach to cash rate setting of late, is tempted to wait another month.
Waiting another month will allow the RBA to gather more evidence as to whether the housing market is truly improving and it will afford them the luxury of seeing the March quarter GDP figures which are released the day after their board meeting (June 5).
Another weak quarter of economic growth will surely trigger the need for a 25 basis point or even 50 basis point cut to the cash rate in July. Furthermore, by the time of the RBA’s July board meeting there will be another read on the labour force and if there is another monthly increase in the unemployment rate that surely constitutes a trend.
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What if the RBA doesn't cut rates? Cameron Kusher

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EXPERT OBSERVER
Earlier this week Westpac moved forward its forecast for RBA cash rate cuts from the original forecast on February 21 of cuts in August and November to June and August.
The June cut remains almost certain; a second in August is our expectation and the November cut should also proceed.
Therefore, Westpac is now forecasting three cuts in 2019 in June; August and November to push the cash rate from 1.5% to 0.75% and to hold at that level through 2020.
Our forecasts for employment; wages growth; economic growth ; inflation and conditions in the housing market  are consistent with the need for  policy to ease  through the full course of 2019, not to go on hold as early as August.
We see the unemployment rate drifting up to 5.4% by year’s end; economic growth at 2.2% for 2019 ; underlying inflation at 1.4%; and the housing market still weak although approaching stability.
That means that the June and August cuts should be supported by a further cut in November.
An option which we considered was a move to some form of Quantitative Easing( QE) should the RBA see the need to ease policy further beyond the 1% level. However, consideration of the RBA’s own research on the deposit structure of major banks( see below) indicates that the RBA could be expected to anticipate that the policy transmission mechanism will still have some effect at a cash rate below 1%.
2019  also seems somewhat early to expect the RBA to embrace QE. Central banks have always favoured interest rate policy over QE until they believed that rate policy flexibility had passed or further lowering rates would be ineffective. Central banks have also mainly favoured QE to ease credit conditions rather than boosting demand.
Looking into 2020 we expect that the case for policy easing could still be apparent but as rates go lower and time passes the option to use QE will become more attractive. Arguably the RBA may see our current forecast of 0.75% as the base or possibly as low as 0.5%. Beyond 0.5% QE seems to be the more effective policy if further easing was required.
Consequently our central forecast for the terminal cash rate in this cycle is 0.75% with risks to the downside, although we would certainly see 0.5% as the floor for the cash rate, with QE a more effective policy tool thereafter.
Optimism that further easing in 2020 may not be necessary would be based on the stabilisation of the housing market; a sustained boost to confidence from a stable Federal government which would be in a position to embrace genuine reform; an improving fiscal position as the terms of trade hold up much better than assumed in the Budget estimates; and a more settled global environment as trade tensions are finally settled.
The revised terminal  cash rate has implications for our AUD and fixed rate forecasts. While back in February we expected the low in the AUD to be USD 0.68 we have now shaved that forecast back to USD 0.66 by end 2019. This forecast is also predicated on  our constructive view on commodity prices and a steady US federal funds rate over 2019.
Markets are currently pricing in a terminal cash rate of around 0.85% by June next year so we have marginally shaved back our bond and swap rate forecasts to reflect a lower and earlier bottom in the cash rate than priced into the market.
The Case for Further Rate Cuts.
Our decision to bring forward the forecasts of rate cuts that we released in  February  was in response to a speech delivered by Governor Lowe on May 21 when he  commented, “A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target. Given this assessment , at our meeting in two weeks’ time, we will consider the case for lower interest rates.”
However there was a fundamental change in the Governor’s approach . Whereas most of his time as Governor has been marked by an overriding concern with the risks posed to the economy around excessive household debt and frothy housing markets he has now turned his attention to the unemployment rate and labour markets.
Recall that the Bank has three objectives : stability of the currency; full employment; and economic prosperity and welfare of the Australian people. Of course “stability of the currency” relates to its objective to hold the inflation rate within the 2-3% band on average over the cycle.
The focus on household debt and asset markets emphasises “economic prosperity and welfare”.
In his speech the Governor turned to another part of his overall objective – the unemployment rate. He noted “ my judgement of the accumulating evidence is that the Australian economy can support an unemployment rate of below 5% without raising inflation concerns”. A lower unemployment rate is also supportive of the “welfare” objective , a possibility of boosting wages growth and assisting with the achievement of the inflation target.
He also noted that “ monetary policy has a role to play here.”
However the RBA’s current forecasts do not inspire confidence that the unemployment rate will fall much below 5%.  The current forecasts have the unemployment rate holding at 5% out to the end of 2020 . It is important to note that those forecasts are based on  market pricing at the time of the May Board meeting  which the Board ( May Board Minutes) notes as “Cash rate can be expected to be lowered by 25 basis points within the next three months and again by the end of 2019”. The forecast is also based on the AUD holding steady at USD 0.70.
With our forecast that the cash rate will be lowered by 25 basis points on June 4 and August 6 the boost to the economy from rate cuts can be expected to be somewhat stronger than if they are delayed as expected in the RBA’s forecast. Furthermore, the RBA forecast assumes that the AUD holds at USD 0.70 for the duration of the forecast period whereas the current trajectory ( spot already below USD0.69) can be expected to be lower.
Nevertheless it seems unlikely that the RBA would make any significant changes to its forecasts on the basis of those second order changes in the assumptions.
The Governor notes that other policies including fiscal support through infrastructure spending; and structural reform also have a role to play.
These are longer term , necessary initiatives but the point  arises as to whether the RBA should do even more than is currently factored into its forecasts.
There are three key issues here:
<ul>
<li>Westpac forecasts that even allowing for the stimulus from the rate cuts the trend in the unemployment rate is likely to edge up. We have a target of 5.4% by end 2019 , well above the RBA’s forecast of 5%.This would reflect clear below trend growth in the economy – we expect 2.2% for 2019 compared with the RBA’s forecast of 2.6%  supplemented by the weakening trend in the employment outlook – “some labour market indicators have softened a little” – RBA Governor , May 21.</li>
<li>The risk of overstimulating the housing market seems low. There is some evidence that the market may be stabilising but we expect that with affordability still stretched in Sydney and Melbourne and other capital city markets now turning down due to the tight credit environment any risk of an overshooting( as we saw in 2016) in response to lower rates seems low.</li>
<li>Will a lower cash rate fail to ease financial conditions due to its very low level ? The issue here revolves around the RBA’s expectation of the capacity of the banks to pass on lower rates . Of paramount importance is the structure of banks’ funding arrangements. The RBA has produced a graph in the May  Statement on Monetary Policy ( Graph 3.6). Our estimate of the numbers in  the graph is that  : 8% of banks’ deposits are held at 0% interest rate; 25% between 0% and 1%; 15% between 1% and 1.5%; 42% above 1.5% and 10% in offset accounts ( effectively earning the mortgage rate).On these numbers the RBA would assess that around 90% of banks’ deposits could cope with the 0.5% rate cut, already expected. Arguably , on these numbers, around 75% would  cope with a further cut. These numbers are approximate and , no doubt, do not  cover all issues.</li>
</ul>
Without doubt the option of QE would be on the radar screen for the RBA but, given the analysis of banks’ deposit structures, it is reasonable that they would look to lower rates in the first instance. At some level of the cash rate , perhaps 0.75% but certainly 0.5% , it is likely that the transmission mechanism from QE would be more effective in easing credit conditions and boosting demand.
The most likely forms of QE would include the RBA purchasing asset backed securities issued by the non- banks or providing attractive funding for the banks secured against their securitised portfolios of mortgages aimed at supporting existing borrowers and possibly tied to new lending targets.
These policies may well be needed to help the RBA move towards its key objectives but are more likely issues for 2020 rather than the immediate challenges which are faced in 2019.
BILL EVANS is the Chief Economist at Westpac
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RBA to halve the cash rate by November: Bill Evans

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GUEST OBSERVATION 
APRA’s scrapping of the 7% ‘stress test’ buffer on home loans will effectively see a 9% increase in borrowing capacity for owner-occupiers which will rise to between 13 and 14% if the RBA undertakes two interest rate cuts before the year is out.
With the current ultra-low interest rate and two interest rate cuts projected by the RBA, APRA’s 7% ‘stress test’ was a major barrier for borrowers in an already highly regulated and scrutinised lending environment. 
However, with the stress test reduced or removed, it would mean that if the interest rate for owner-occupiers was about 3.75%, they would pay about 6.25%, which would create a 9% borrowing capacity. 
If there are no interest rate cuts the increase in borrowing capacity will be an increase of around 4-5% for investors and for owner-occupiers about 9%. 
However, if the RBA cut rates twice, we will see an increase of around 9% for investors and potentially 13-14% for owner-occupiers.  
This will be a major boost to the market, especially as now the number one risk has been removed thanks to a Coalition win and the elimination of the threat of taxation changes to negative gearing and capital gains tax. 
APRA’s introduced a 7% ‘floor assessment’ to the ADIs in December 2014 “to examine the resilience of the largest banks, individually and collectively, and to explore the potential impacts of grim and challenging periods of stormy economic weather”, according to APRA chairman Wayne Byres in July 2018.
While at that point of time this instruction to the ADIs was, indeed, required, this conservative approach could not be applied to the lending landscape of 2019.
In 2014, there was a tangible risk that in the foreseeable future interest rates might increase materially.
Further, a high proportion (44%) of the loans were interest-only and 12% of the loans had LVR of 90%.
That, alongside loose controls over the accuracy of the information provided by prospective borrowers in loan applications and reliance on the HEM to assess household expenses, provided justification for APRA’s instruction. 
The banks also applied a slightly higher rate of 7.25% to ensure they were above the minimum threshold.  
However, since then the lending environment had completely changed and APRA’s requirement had become ultra-conservative.  
Interest rates are now very low with a very high likelihood of additional cuts by the RBA, and no signs of increases in the foreseeable future.
A low interest rate environment has, effectively, become the ‘new normal’ in Australia. 
Loan applications are heavily scrutinised, lenders are applying more conservative credit policies, the proportion of interest-only loans is now low with only 16% of the new loans (December 2018) being interest-only and 7% of loans at 90%.
RiskWise Property Research analysis showed a reduction of at least 1% was needed in order to have some meaningful impact. This is equivalent of the APRA’s announced change, that, while taking a different approach, will put the effective floor assessment at 6.25% for owner-occupiers in the current lending market.  
For example, RiskWise undertook a case study of a scenario involving a married couple, who both receive average weekly earnings at their full-time jobs, and have two children. 
The couple require a loan of 30 years and their only expenses are either HEM or HEM X 1.5, and the assumption is they have no credit card repayments and other expenses.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/5/21/HEM%20table.jpg" alt="">
Source: Riskwise
Our analysis showed that due to the scrutinising of loan applications and by applying the effective 7.25% 'stress test' this materially reduced their borrowing capacity by 33%.
The borrowing capacity of $698,000, based on the HEM and 'floor assessment' of 7.25%, is equivalent to HEM X 1.5, with an interest rate of 2.87%. 
As a result, the couple would have to totally re-assess their entire purchasing strategy. 
So APRA’s change is equivalent to the required reduction in the floor assessment that has the right balance between having a meaningful impact, while still having good risk-management practices.
DORON PELEG is the CEO of <a href="https://www.propertyobserver.com.au/Visit%20www.riskwiseproperty.com.au" target="_blank">RiskWise Property Research</a>.
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j.ballantyne1990-6AQqhLzZaK

APRA move to scrap stress test increases borrower power: Doron Peleg

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EXPERT OBSERVATION 
Westpac has revised the forecast it released on February 21 that the RBA would cut the cash rate in August and November to June and August.
On February 21, Westpac forecast that the Reserve Bank would cut the cash rate by 50 basis points in two tranches – August and November. Since then markets and forecasters have largely moved in that direction.
We have not changed that forecast since that date.
However, we are announcing an adjustment to the forecast to bring forward the first cut to the June Board meeting with the second cut to follow in August.
We then expect the cash rate to remain on hold through 2020.
This change in forecast reflects the lift in the unemployment rate for April from 5.1% to 5.2% and the confirmation from the Governor that the Board would be closely following developments in the labour market with the primary focus on the unemployment rate.
The Governor’s thinking has evolved over the year to accept that, as we have observed in other countries, upside inflation risks are consistent with a lower unemployment rate than had previously been assessed. For Australia the Bank had believed that the key unemployment rate was 5% - he now accepts that he can drive the economy harder with an associated lower unemployment rate without risking any inflation overshoot.
Recall that the current forecast for the unemployment rate is 5% to end 2020, (falling to 4.75% by June 2021), based on market pricing, which in the May Board Minutes is assessed as “the cash rate was expected to be lowered by 25 basis points within the next three months and again by the end of 2019”.
In his speech “the Economic Outlook and Monetary Policy”, released today, he gives the strong guidance that “at our meeting in two weeks’ time, we will consider the case for lower rates".
Recall that other aspects of the Bank’s current forecasts are underwhelming despite the assumption around lower rates – 2.6% growth in 2019; 1.75% trimmed mean inflation in 2019; and 5% unemployment rate by end 2019.
With the June rate cut virtually locked in, the issue is why we expect a follow up move in August.
Firstly, that timing is a little more aggressive than was used in the May SOMP and therefore could reasonably be associated with somewhat more optimistic forecasts.
Secondly, we expect that the June quarter trimmed mean inflation print (released on July 31) will be 0.4% indicating that underlying inflation will print 0.7% for the first half of 2019, making it difficult to persist with a 1.75% forecast for underlying inflation in 2019 – downgrading the underlying inflation forecast to 1.5% in 2019 will make it difficult for the RBA to credibly forecast a return to 2% inflation in 2020.
The Bank may choose to persist with overly optimistic forecasts but will need to ease again to emphasise its inflation targeting credentials.
This second cut would also be consistent with the assumptions that have underpinned the May forecasts .
Key to Westpac’s rate cut forecast on February 21 was the expectation that the unemployment rate was likely to reach 5.4% by end 2019. Our work around the weakness in the cyclical parts of the labour market (around 60% of employment) which is already apparent and recent trends in the business surveys signal that the softening in the labour market can be expected to become more apparent in the next few months.
We also expect that the March quarter GDP report (released June 5) will confirm the Bank’s recent downbeat assessment of the consumer (consumer spending growth in 2019 revised down from 2.5% in February to 2.0% in May) and note that the May Minutes see downside risks to the consumption forecasts.
Note also that the May Minutes point to downside risks for the global economy and confirmed in today’s speech.
Looking further out it is important that the Governor stressed the importance of the exchange rate in the monetary policy transmission mechanism. Accordingly, in order to extract ongoing “dividend” from the rate cut cycle it seems likely that the August RBA decision will not preclude further action.
However, our current assessment is that with the housing market stabilising in 2020 and the RBA uncertain about the impact of sub 1% cash rate on the economy the eventual low point in the cycle will prove to be 1%. This view is consistent with our original call back in February this year.
Our forecast low point of USD0.68 for the AUD which printed in our report on February 21 was predicated on the two cuts – the change in the timing of the cuts does not materially affect that call.
BILL EVANS is Chief Economist for Westpac.
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Westpac tips interest rate cuts in both June and August: Bill Evans

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EXPERT OBSERVATION
Westpac correctly forecast that the RBA would remain on hold at the May Board meeting. The Bank was clearly less concerned about the March quarter Inflation report and emphasised the importance of developments in the labour market. Westpac continues to expect rate cuts at the August and November Board meetings.
The Reserve Bank Board decided to leave the cash rate unchanged at 1.50%.
This was Westpac’s forecast, although markets were uncertain, with around a 50% probability priced in for a rate cut and 14/26 market economists forecasting a cut (Bloomberg survey 3 May). There are two main reasons behind this decision. Firstly, the RBA’s response to the recent March quarter inflation report was not as negative as had been expected. In its preview, Westpac pointed out that the RBA had moved from forecasting underlying inflation as the average of the weighted median and the trimmed mean to  forecasting just the trimmed mean.
In the March inflation report, the trimmed mean printed an increase of 0.3% for the quarter, compared to the RBA’s likely forecast of 0.4% - only a 0.1ppt miss. Today, the RBA lowered its trimmed mean forecast for 2019 from 2% to 1.75%, and for 2020 from 2.25% to 2%. That is only a 0.25 ppt reduction in the forecast. As we pointed out in our preview, that reduction compares to a 1 ppt reduction in the forecast from 2.5% to 1.5% in May 2016 (in response to a similarly low inflation report for the March quarter). Governor Stevens cut rates in response to that forecast change at the May 2016 Board meeting.
The second issue of importance was the Board’s noting in the April meeting minutes that “members also discussed the scenario where inflation did not move any higher and unemployment trended up, noting that a decrease in the cash rate would likely be appropriate in these circumstances”.
Today’s Governor’s Statement strongly emphasised the importance of the labour market, “it [the Board] recognised that there was still spare capacity in the economy and a further improvement in the labour market was likely to be needed for inflation to be consistent with the target. Given this assessment, the Board will be paying close attention to developments in the labour market at its upcoming meetings”.
As this comment emphasises, the second condition nominated in the April minutes is yet to be fulfilled. It is also important from a timing perspective to note the term “upcoming meetings”. That suggests to us that a common view held by some economists of a move in June  can be ruled out. This condition around the labour market will need more than one employment report to establish a trend.
We feel that this statement fits well with our view that the next move will be a cut in August. Firstly, we expect that the June quarter inflation report will print trimmed mean growth of around 0.4%. With the first six months of the year contributing 0.7ppts to the annual rate for 2019, it is unlikely it will be possible to persist with the 1.75%( 2019) - 2%( 2020) scenario and a 1.5%( 2019) – 1.75% (2020) scenario will be adopted by the RBA  for its August meeting. Recognition that inflation will hold below the bottom of the 2-3% target band for 2019 and 2020 will signal the need for further policy easing.
We also expect that developments in the labour market over the next three months will disappoint the RBA. It is not entirely clear whether they will be satisfied with a stable 5% unemployment rate which the Governor notes is their forecast for the next year, or they require a sustained lower unemployment rate, as noted in the concluding paragraph stating that a further improvement in the labour market is needed. Either way Westpac expects to see a deterioration in the labour market over the next six months.
We expect that this sequence of weak inflation and softening labour market data will persist throughout 2019, which is consistent with our growth forecast of 2.2% compared to trend of 2.75%. That profile remains consistent with the need for further stimulus at the November meeting following the August cut
Supporting our outlook for the labour market is our research showing that the cyclical sectors of the economy are already in jobs decline although this is being supported by ongoing jobs growth in the non- cyclical sectors.
Westpac forecast that rates would remain steady at today’s meeting. However we anticipate that developments around domestic demand; the labour market; and underlying inflation will establish a clear case for cuts in both August and November. This view has been held since February 21.
BILL EVANS is Chief Economist for Westpac.
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RBA holds rates steady in line with Westpac's forecast: Bill Evans 

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At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
The outlook for the global economy remains reasonable, although the risks are tilted to the downside. Growth in international trade has declined and investment intentions have softened in a number of countries. In China, the authorities have taken steps to support the economy, while addressing risks in the financial system. In most advanced economies, inflation remains subdued, unemployment rates are low and wages growth has picked up.
Global financial conditions remain accommodative. Long-term bond yields are low, consistent with the subdued outlook for inflation, and equity markets have strengthened. Risk premiums also remain low. In Australia, long-term bond yields are at historically low levels and short-term bank funding costs have declined further. Some lending rates have declined recently, although the average mortgage rate paid is unchanged. The Australian dollar is at the low end of its narrow range of recent times.
The central scenario is for the Australian economy to grow by around 2¾ per cent in 2019 and 2020. This outlook is supported by increased investment in infrastructure and a pick-up in activity in the resources sector, partly in response to an increase in the prices of Australia's exports. The main domestic uncertainty continues to be the outlook for household consumption, which is being affected by a protracted period of low income growth and declining housing prices. Some pick-up in growth in household disposable income is expected and this should support consumption.
The Australian labour market remains strong. There has been a significant increase in employment, the vacancy rate remains high and there are reports of skills shortages in some areas. Despite these positive developments, there has been little further progress in reducing unemployment over the past six months. The unemployment rate has been broadly steady at around 5 per cent over this time and is expected to remain around this level over the next year or so, before declining a little to 4¾ per cent in 2021. The strong employment growth over the past year or so has led to some pick-up in wages growth, which is a welcome development. Some further lift in wages growth is expected, although this is likely to be a gradual process.
The adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities. Conditions remain soft and rent inflation remains low. Credit conditions for some borrowers have tightened over the past year or so. At the same time, the demand for credit by investors in the housing market has slowed noticeably as the dynamics of the housing market have changed. Growth in credit extended to owner-occupiers has eased over the past year. Mortgage rates remain low and there is strong competition for borrowers of high credit quality.
The inflation data for the March quarter were noticeably lower than expected and suggest subdued inflationary pressures across much of the economy. Over the year, inflation was 1.3 per cent and, in underlying terms, was 1.6 per cent. Lower housing-related costs and a range of policy decisions affecting administered prices both contributed to this outcome. Looking forward, inflation is expected to pick up, but to do so only gradually. The central scenario is for underlying inflation to be 1¾ per cent this year, 2 per cent in 2020 and a little higher after that. In headline terms, inflation is expected to be around 2 per cent this year, boosted by the recent increase in petrol prices.
The Board judged that it was appropriate to hold the stance of policy unchanged at this meeting. In doing so, it recognised that there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target. Given this assessment, the Board will be paying close attention to developments in the labour market at its upcoming meetings.
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