<p>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.</p>

<p>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;</p>

<p>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;</p>

<p>“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;</p>

<p>[smartcode_project:default project_id=110291 project_image_fid=302785]</p>

<h2>Affordable product leads, premium demand remains resilient</h2>

<p>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;</p>

<p>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;</p>

<p>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.</p>

<p>Jual (Shenton Park, Celsius Property) also posted a strong quarter with 28 sales, reaching 39% sold in one quarter.</p>

<p>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;</p>

<p>[smartcode_project:default project_id=148957 project_image_fid=364102]</p>

<h2>Prices underpinned by costs, and the delivery risk is growing</h2>

<p>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.</p>

<p>David Cresp said a growing challenge for private Build‑to‑Sell developers is simply securing a builder in the current environment.</p>

<p>“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;</p>

<p>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.</p>

<p>[smartcode_project:default project_id=108869 project_image_fid=317905]</p>

<h2>Supply: improving later, but still constrained, and Perth lags eastern benchmarks</h2>

<p>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;</p>

<p>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;</p>

<p>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”.</p>

<p>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;</p>


Joel Robinson

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

<p><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.</p>

<p>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.</p>

<p>Sammut Director Julian Sammut said the group had been actively searching Brisbane for several years before identifying Toowong as the right fit.</p>

<p>“Brisbane was the right step for Sammut,” Sammut said.</p>

<p>“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.”</p>

<p><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" /></p>

<p>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.</p>

<p>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.</p>

<p>“We are DA approved now which is very exciting,” Sammut said.</p>

<p>“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.”</p>

<p><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" /></p>

<p>Bureau^proberts said the design responds to Toowong’s evolving urban character, balancing contemporary apartment living with the area’s established residential identity.</p>

<p>“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.</p>

<p>The architecture practice said the project’s form was shaped by its riverfront setting, flood considerations, neighbouring building scales, and view corridors.</p>

<p>“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.”</p>

<p>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.</p>

<p>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.</p>


Sammut secures approval for debut Brisbane apartment development in Toowong

<p>Developer Lanevick is heading back into Sydney’s apartment market after focusing more heavily on the luxury townhouse and terrace sector in recent years.</p>

<p>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.</p>

<p>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.</p>

<p>“Traditionally it’s been difficult for people in that market to downsize because there just hasn’t been the right product available,” Maroun said.</p>

<p>“We’re targeting buyers who might have 30 to 40 per cent of their house value sitting in the bank after downsizing.</p>

<p>“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.”</p>

<p>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.</p>

<p>“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.”</p>

<p>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.</p>

<p>“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.”</p>

<p>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.</p>

<p>“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.</p>

<p>Maroun said Lanevick saw a first-mover advantage within the precinct as planning controls continue to evolve to accommodate greater housing density.</p>

<p>“We think there’s a real opportunity there that hasn’t really been serviced properly yet,” he said.</p>

<p>“There’s going to be a broader evolution of the whole Gladesville village precinct over time, particularly with more activation and mixed-use outcomes.”</p>

<p>The Venus Street proposal will include a commercial and retail component at ground level designed to contribute to that evolving streetscape activation.</p>

<p>“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.</p>

<p>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.</p>

<p>&nbsp;</p>


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

<p>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.</p>

<p>The New York-based investor has focused his firm, GreenPoint Partners, on addressing the supply shortage hitting middle market housing in Australia.</p>

<p>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.</p>

<p>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.</p>

<p>“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.</p>

<p>“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.”</p>

<p><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" /></p>

<p>GreenPoint Partners brings years of experience assembling and scaling real estate operating businesses across major markets. And Green sees a big opportunity in Australia.</p>

<p>“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.”</p>

<p>Green said being a builder-developer would give the company the capacity and flexibility it required to deliver reasonably-priced homes.</p>

<p>“We want it to be at that attainable level; not super high end luxury but at that attainable level,” he said.</p>

<p><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" /></p>

<p>&nbsp;</p>

<p>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.</p>

<p>Green praised local policy settings.</p>

<p>“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.”</p>

<p>One Living is also&nbsp;looking at high-density projects and could take on more institutional funding in the future.</p>

<p>“The way we will be able to achieve economies of scale is through size,” Green added.</p>


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

<p>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.</p>

<p>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.</p>

<p>Projects by Buxton Director Heath Thompson, who is selling WM Residences, says the townhouses x that perfect middle ground be</p>

<p data-end="683" data-start="511">"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.</p>

<p data-end="882" data-start="690">"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."</p>

<p data-end="882" data-start="690">[smartcode_project:default project_id=134646 project_image_fid=6109]</p>

<p>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.</p>

<p>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.</p>

<p>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.</p>

<p>[smartcode_project:default project_id=134646 project_image_fid=6110]</p>

<p>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.</p>

<p>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.</p>

<p>[smartcode_project:default project_id=134646 project_image_fid=6116]</p>

<p data-end="247" data-is-last-node="" data-is-only-node="" data-start="0">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.</p>

<p>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.</p>

<p>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.</p>

<p>[smartcode_project_cta:default project_id=134646]</p>


WM Residences fills gap in Mordialloc townhouse market

Rba Rate Decision

<html><body>
<p>GUEST OBSERVATION</p>
<p>In the 2017 budget lockup - when then-Treasurer Scott Morrison announced his outrageous bank tax/heist - I heard one well-known journo remark to another “Boy, it’s a f…ing bad day to be a banker”.</p>
<p>And so one might say today that it’s a bad time to be a central banker.</p>
<p>The big debate going on at the moment is whether the “inflation-targeting” framework followed by the United States Federal Reserve, Reserve Bank of Australia and other central banks, is up to the job in a post-2008 world.</p>
<p>Inflation targeting is where central banks try and keep inflation within a certain range. But they have recently been struggling to achieve their targets.</p>
<p>It’s pretty clear the real interest rate consistent with financial stability in advanced economies is lower than it has been in the past. This means GDP growth rates with a two in front of them are the new normal.</p>
<p>How should monetary policy change - if at all - in light of this?</p>
<p>Inflation targeting in both the United States and Australia dates to the (early/mid) 1990s. Central banks saw a tradeoff between inflation that was either too high or too low. The US Federal Reserve (to this day) summarises it as follows (emphasis added)</p>
<p>"Over time a higher inflation rate would reduce the public’s ability to make accurate economic and financial decisions. On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation… a phenomenon associated with very weak economic conditions. Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken."</p>
<p>At the time the Fed settled on a 2% target and the RBA on a 2-3% band.</p>
<p>The question is, are these useful targets today?</p>
<p>As former US Treasury Secretary and NEC Chair Larry Summers put it when commenting on the tradeoff and how it might have changed (emphasis added):</p>
<p>"I do not see much that has changed that bears on the cost of higher inflation in making it harder for economic agents to plan. On the other hand there are compelling reasons to believe that the risks of deflation have increased. First, the world has seen a substantial amount of deflation or very low inflation over the last 20 years. In Japan and significant parts of Europe, deflation has taken place over several year periods. And there were moments during the financial crisis when deflation appeared a real risk for the United States. Second, deflation scenarios occur when the economy falls into the liquidity trap where short term safe nominal rates cannot be reduced any further even though there is economic slack and inflation rates are declining. On any reasonable calculation this is a much greater risk than it could have appeared in the mid-1990s."</p>
<p>The risk is these frameworks are beneficial precisely because they provide certainty to markets and economic actors, and anchor inflation expectations. If one changes the framework too readily or too often then disaster looms.</p>
<p><strong>Changing the mandate</strong></p>
<p>Having said that, there’s a good case to be made for a nominal GDP target rather than the kind of inflation target we currently have. A number of distinguished scholars have advocated this position.</p>
<p>Whatever the new framework is - and there surely needs to be a new one - should almost surely involve nominal interest rates around 5% in normal times. This would permit monetary policy to respond to sharp economic downturns.</p>
<p>How that is achieved is a tactical, not a strategic question. And I say that with all due chiding.</p>
<p>To me, the deep and hard question is how we transition to such a framework without a large loss of credibility. That surely involves making the case - in a compelling fashion - that the world has changed.</p>
<p>US Federal Reserve chair Jay Powell and RBA governor Phil Lowe need to have this discussion very publicly.</p>
<p>Thus far the RBA has not really been on the field, but it pulled out its strongest intellectual weapon on Wednesday, with deputy governor Guy Debelle delivering a detailed speech on inflation in Brisbane.</p>
<p>He offered some suggestions about why inflation has been low - perhaps unusually so - of late, and then concluded with something that sounded an awful lot like the party line (emphasis added):</p>
<p>"Our current forecast for inflation is broadly unchanged from earlier forecasts. We did revise down our expectation for inflation in the current quarter for reasons I have just discussed. Beyond the September quarter, we continue to expect inflation to be around 2¼% over the next couple of years as above-trend GDP growth reduces spare capacity in the labour market and there is an associated pick-up in wages growth. We expect most of these other forces that have contributed to the recent low rate of inflation to abate but there is uncertainty about how much longer they will persist. We would like to be more confident that inflation will be sustained at a rate consistent with the target."</p>
<p>The RBA can call it their “house view”, and we observers can call it other things. But one thing is for sure, the RBA cannot duck the question of what the appropriate monetary-policy framework is for a secular-stagnation world much longer.</p>

<p>They may be able to keep the cash rate on hold, but this debate cannot be kept on hold.</p>
<p><em><strong>Richard Holden</strong>, Professor of Economics and PLuS Alliance Fellow, UNSW<a href="http://theconversation.com/institutions/unsw-1414"></a></em></p>
<p><em>This article was originally published on <a href="http://theconversation.com">The Conversation</a>. Read the <a href="https://theconversation.com/vital-signs-its-time-to-discuss-a-new-framework-for-central-banking-101978">original article</a>.</em></p>
</body></html>

rh-YsoTT2xMuQ

 It’s time to discuss a new framework for central banking: Richard Holden

<html><body>
<p>EXPERT OBSERVER</p>
<p>However the minutes of the Monetary Policy Meeting of the Reserve Bank Board contain increased confidence for the consumer outlook.</p>
<p>The themes we have seen in previous minutes around a continuing global economic expansion tempered by some policy induced slowdown in the Chinese economy remain. As before, the issue around international trade is highlighted as a source of uncertainty for the global outlook. The forecasts for the Australian economy which were set out in the recent August Statement on Monetary Policy are described as largely unchanged.</p>
<p>Of most interest in the commentary around the economy relates to a more confident assessment of the risks around the consumer. “Recent data on wages growth and expectations of a further tightening in labour market conditions had provided more comfort that household income growth would continue to increase gradually and support the outlook for consumption”. In previous minutes, the outlook for household spending was described as a source of uncertainty. In these minutes, the Board points out that “the more recent increase in minimum wages, the announcement of future tax cuts, and expectations of a further tightening in labour market conditions had reduced some of the uncertainty around the outlook for consumption.”</p>
<p>Commentary around the housing market is unchanged with Sydney and Melbourne house prices having “declined further in July and across a broad range of properties”. No real outlook is provided, although the Board continues to point out that “some further tightening of lending standards by banks was possible”.</p>
<p>The investment outlook remained positive, although non-mining business investment was expected to grow at a more moderate pace than over the previous year. The pipeline for building construction work was still reasonable supporting the growth outlook in the near-term but, by implication, slowing further out.</p>
<p>The minutes confirm the forecasts in the August SoMP which anticipate both headline and underlying inflation failing below 2 per cent to 1 ¾ per cent in 2018. This downward revision to the previous 2 ¼ per cent and 2 per cent respectively is attributed to some one-offs on childcare, TAFE and car registration fees and utilities prices. Appropriately, Board Members note that there is a risk that the recent decline in wholesale electricity prices could have more persistent effects. Certainly Westpac is of that view.</p>
<p>Finally, as expected, the minutes emphasise that reducing the unemployment rate and returning inflation towards to the mid-point of the target remain the necessary conditions to support higher rates. It is reiterated that the next move in the cash rate would more likely be an increase rather than  a decrease.</p>
<p><strong>Conclusion</strong></p>
<p>Today Westpac released an update to its forecasts, extending them out to the end of 2020. We anticipate the cash rate remaining on hold through 2018, 2019 and 2020. Factors which we consider important in this profile are: a steady weakening in the housing market through 2018 and 2019, low inflation, benign wages growth, and clear signs of a slowdown in the world economy.</p>
<p>The Minutes mention most of these factors but appear to be overly hopeful that economic activity and income growth will be sufficient to justify a rate hike at some point.</p>
<p><em>Bill Evans is the Chief Economist for Westpac</em></p>
</body></html>

bevans-rYk9SxEa4r

Overly hopeful RBA board minutes contain few surprises: Bill Evans

<html><body>
<p>GUEST OBSERVATION</p>
<p>The disturbing trend of persistently low inflation continues, as Wednesday’s data release shows.</p>
<p>Headline inflation was 2.1% for the last 12 months. But the more relevant “underlying” rate came in at 1.9%. This is even below the 2.0% the RBA forecast in May.</p>
<p>Given that the RBA’s target band for inflation is 2-3%, and that inflation has barely touched the bottom of that band over a protracted period, there are implications for monetary policy.</p>
<p>But, before we get to that, the obvious question to ask is: why is inflation so low?</p>
<p>One strand of thinking involves the “Philips Curve”. This basically says that low unemployment pushes up wages growth and hence inflation.</p>
<p>We could get into a long discussion of whether the current 5.4% unemployment rate is “low”. And whether the effective rate really is 5.4% given anecdotal evidence about “underemployment”, the impact of recent decisions on penalty rates and minimum wage rises, and the robot revolution as a backdrop to the whole labour market.</p>
<p>But we don’t need to go there. There is barely any evidence of the Philips Curve in the data over the past quarter century, so let’s just reject that theory and move on.</p>
<p><strong>Plausible factors keeping a lid on inflation</strong></p>
<ol>
<li>
<p><strong>Technology</strong>. The information technology and internet revolution has made lots of things much cheaper. Take music. Gone are the days of paying A$20-plus for a CD with maybe 16 songs on it. Streaming services like Apple Music and Spotify give access to literally millions of songs for a small monthly fee.</p>
</li>
<li>
<p><strong>China</strong>. The rise of Chinese manufacturing has led to everything from kids’ toys to cell phones being produced vastly more cheaply than if those things were manufactured with higher-cost labour.</p>
</li>
<li>
<p><strong>Globalisation and trade</strong>. The world has become radically more connected, and so have company supply chains. This not only allows access to lower-cost manufacturing but also leads to better specialisation through the principle of comparative advantage. This means that high-labour-cost countries like Australia can specialise in other components of goods and services, get better at producing those components, and reduce overall costs further.</p>
</li>
<li>
<p><strong>Wages</strong>. Wage growth has been subdued for a long time now. Since labour costs are an important component of many goods and services, this has served to tame inflation. One potential reason for low wage growth is that automation sits as a background threat to human labour. If labour costs get too high then processes get automated, which serves to keep wages in check.</p>
</li>
<li>
<p><strong>Leverage and consumer spending</strong>. A final factor is that given how heavily indebted Australian households are –largely through mortgage debt – they simply don’t have a lot of discretionary income. This limits consumer spending and makes price rises in the retail sector less likely.</p>
</li>
</ol>
<p>These factors don’t look likely to change any time soon – with the possible exception of trade due to the Trump trade war. But even if that escalates dramatically it will shrink economic activity, further depressing prices.</p>
<p>So we have long-run, persistently low inflation. Is that a problem?</p>
<p>The major concern is that it could turn into deflation, although that doesn’t look terribly likely right now.</p>
<p>If, however, there was another significant economic downturn then deflation is a very real prospect. That would raise the spectre of Japan’s experience of the 1990s where deflation caused people to hoard money, severely contracting economic activity.</p>
<p>But for now the real impact of low inflation is on the RBA.</p>
<p>Faced with inflation below its target band for an extended period, the standard response would be to cut interest rates. The RBA is clearly worried about doing this.</p>
<p>One reason is housing prices – the RBA is worried about further fuelling the bubble.</p>
<p>With housing prices easing, this may become less of a concern, although household debt levels remain extremely high. Not encouraging households to become further indebted seems like a reasonable concern.</p>
<p>A second reason the RBA may be nervous about cutting rates is that it doesn’t have very far to go with the cash rate at 1.50%. If there is another major economic downturn then the RBA wants to have some firepower left to respond.</p>
<p>If short-term rates were already near zero then the only tools available to the central bank would be non-standard measures such as quantitative easing. That would be uncharted territory for the RBA, which seems reticent to explore that territory.</p>
<p>So, as with economic growth and wage rises, the RBA response seems to involve crossing as many fingers and toes as possible and to publicly proclaim that things are looking good, but may take a while.</p>
<p><img src="https://counter.theconversation.com/content/100514/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">We will get a better look into how that strategy is going when wage price index figures are released mid-August.</p>
<p><em><strong>Richard Holden</strong>, Professor of Economics and PLuS Alliance Fellow, UNSW</em></p>
<p><em>This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/vital-signs-inflation-misses-again-so-where-does-the-rba-go-next-100514" target="_blank">original article</a>.</em></p>
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Inflation misses again, so where does the RBA go next?

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<p>EXPERT OBSERVER</p>
<p>The minutes of the Reserve Bank Board’s July monetary policy meeting provide some significant additional colour around the Bank’s current thinking.</p>
<p>The main points of interest are: 1) a slightly more tentative tone around the outlook; 2) the reinstated line that the next cash rate move “would more likely be an increase than a decrease” but with a clearer qualification that this would not be any time soon; 3) expanded comments on the rise in bank funding costs, albeit without any strong conclusions; and 4) additional commentary about a ‘special paper’ prepared for the meeting on Australian household debt.</p>
<div>As to be expected, the main discussion was as per the Governor’s post-meeting decision statement: a little less positive on the global front, acknowledging uncertainty around trade policy abroad and rising short term wholesale interest rates locally, but assessing the Australian data flow as in line with the Bank’s above trend growth view, with a slightly firmer outlook for labour markets but key uncertainties still hanging on the outlook for the consumer.</div>
<div> </div>
<div>However, there were some notable shifts in the closing paragraphs of the ‘Considerations for Monetary Policy’ section, which sets out the decision rationale and framework for policy decisions going forward.</div>
<div> </div>
<div>Usually this just reprises the closing paragraphs from the Governor’s decision statement.</div>
<div> </div>
<div>However, the July minutes provide quite a bit more colour.</div>
<div> </div>
<div>The outlook comes across as a little more tentative – whereas the July decision statement and June minutes carried the simple line that: “Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual”, the July minutes couched this as something “Members continued to view the strengthening economy as likely to deliver”.</div>
<div> </div>
<div>The commentary provides a clearer framework for future policy as well.</div>
<div> </div>
<div>Back in April-May the minutes included a slightly surprising line that: “In the current circumstances, members agreed that it was more likely that the next move in the cash rate would be up, rather than down.” This line was dropped in the June minutes but reinstated in the July minutes.</div>
<div> </div>
<div>However, it was given an important qualifier that “since progress … was likely to be gradual, [members] also agreed there was no strong case for a near-term adjustment in monetary policy” and that “it would be appropriate to hold the cash rate steady … while this progress unfolds”.</div>
<div> </div>
<div>This brings the minutes into line with recent commentary from the RBA Governor, and in particular a speech on June 13 in which he noted that “the environment in which interest rates are increasing is also likely to be one in which people's incomes are growing more quickly than they are now”.</div>
<div> </div>
<div>The bottom line is that official rates are not moving up any time soon.</div>
<div> </div>
<div>One area of keen interest going into the minutes was how they would handle an expanded discussion of the rise in wholesale interest rates.</div>
<div> </div>
<div>The Governor’s decision statement had acknowledged that gains in recent months were due to more than just developments in the US but stopped short of describing the ‘other factors’ at work.</div>
<div> </div>
<div>The minutes go a little further, members noting the tendency for pressures to rise at the end of the quarter and that major bank funding costs had risen “a little over 2018”.</div>
<div> </div>
<div>While the Board clearly remains uncertain about how persistent these pressures will be, the phrasing and the consistent note that “the average mortgage interest rate on outstanding loans had been declining for some time” given more prominence in the minutes and Governor’s statements in recent months suggests the Bank is not overly concerned about the current situation.</div>
<div> </div>
<div>We look forward to a fuller assessment in the RBA’s August Statement on Monetary Policy.</div>
<div> </div>
<div>The July minutes included an extended discussion on Australian household debt levels, with a ‘special paper’ prepared for the meeting.</div>
<div> </div>
<div>Key points were fairly familiar although some comments were notable, in particular that “members recognised that a material share of household debt is held by lower-income households, which generally have higher debt relative to their income”.</div>
<div> </div>
<div>The same group however were seen as likely to have ‘asymmetric’ responses to interest rate moves –sensitive to increases but less likely to borrow more when rates fall.</div>
<div><strong> </strong></div>
<div><strong>Conclusion</strong></div>
<div><strong> </strong></div>
<div>There were many other points of interest in the remainder of the minutes, which were the longest in word count terms since the RBA began publishing full meeting minutes in 2006.</div>
<div> </div>
<div>Many of these were more optimistic than the comments we have singled out – household labour incomes and labour market vacancy rates for example were noted as positives domestically, as were the contributions from public sector activity, infrastructure investment, non-mining business investment more generally, a rise in the terms of trade and evidence of rising wage pressures in major economies abroad.</div>
<div> </div>
<div>Overall though the additional colour from the July meeting minutes again underscores that policy is firmly on hold. We remain of the view that the RBA will leave the cash rate unchanged throughout 2018 and 2019.</div>
<div> </div>
<div><em>Matthew Hassan is a Senior Economist at Westpac.</em></div>
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Matthew_Hassan-HHWHptmrw4

RBA's July board meeting confirms the cash rate isn't changing: Matthew Hassan

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<p>The RBA have released their chart pack for the July cash rate decision.</p>
<p>We focus on the key charts which will have helped the institution come to its decision to hold rates at 1.5 percent for the 21st consecutive meeting. </p>
<p>Australia's GDP growth continues to rise to the highest point in the last three years.</p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/7/4/GDP-Growth.jpg" target="_blank">to enlarge.</a></p>
<p><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/2018/7/4/GDP-Growth.jpg" alt=""></p>
<p>Consumer price inflation stuttered after bouncing back from its record low in 2016.</p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/7/4/CPI-RBA.jpg" target="_blank">to enlarge.</a></p>
<p><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/2018/7/4/CPI-RBA.jpg" alt=""></p>
<p>Consumer sentiment continues to hover just above average.</p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/7/4/sentiment.jpg" target="_blank">to enlarge.</a></p>
<p><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/2018/7/4/sentiment.jpg" alt=""></p>
<p>House prices continue to decline, however there's no slowing down of household debt which continues to climb, although at a slower rate.</p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/7/4/price%20and%20debt.jpg" target="_blank">to enlarge.</a></p>
<p><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/2018/7/4/price%20and%20debt.jpg" alt=""></p>
<p>Housing loan approvals continue to fall as the banks tighten their lending criteria.</p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/7/4/approvals.jpg" target="_blank">to enlarge.</a></p>
<p><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/2018/7/4/approvals.jpg" alt=""></p>
<p>To see the <a href="http://www.rba.gov.au/chart-pack/pdf/chart-pack.pdf?v=2018-07-04-11-34-08" target="_blank">full chart pack click here.</a></p>
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jonathanchancellor-7SQnKwU6yx

RBA's July chart pack that helped make its cash rate hold

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<div class="rss-mr-content">
<p><span>At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.</span></p>
<p>The global economic expansion is continuing. A number of advanced economies are growing at an above-trend rate and unemployment rates are low. The Chinese economy continues to grow solidly, with the authorities paying increased attention to the risks in the financial sector and the sustainability of growth. Globally, inflation remains low, although it has increased in some economies and further increases are expected given the tight labour markets. One uncertainty regarding the global outlook stems from the direction of international trade policy in the United States. There have also been strains in a few emerging market economies, largely for country-specific reasons.</p>
<p>Financial conditions remain expansionary, although they are gradually becoming less so in some countries. There has been a broad-based appreciation of the US dollar. In Australia, short-term wholesale interest rates have increased over recent months. This is partly due to developments in the United States, but there are other factors at work as well. It remains to be seen the extent to which these factors persist.</p>
<p>The recent data on the Australian economy continue to be consistent with the Bank's central forecast for GDP growth to average a bit above 3 per cent in 2018 and 2019. GDP grew strongly in the March quarter, with the economy expanding by 3.1 per cent over the year. Business conditions are positive and non-mining business investment is continuing to increase. Higher levels of public infrastructure investment are also supporting the economy. One continuing source of uncertainty is the outlook for household consumption. Household income has been growing slowly and debt levels are high.</p>
<p>Higher commodity prices have provided a boost to national income recently. Australia's terms of trade are, however, expected to decline over the next few years, but remain at a relatively high level. The Australian dollar has depreciated a little, but remains within the range that it has been in over the past two years.</p>
<p>The outlook for the labour market remains positive. Strong growth in employment has been accompanied by a significant rise in labour force participation. The vacancy rate is high and other forward-looking indicators continue to point to solid growth in employment. A gradual decline in the unemployment rate is expected, after being steady at around 5½ per cent for much of the past year. Wages growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wages growth over time. Consistent with this, the rate of wages growth appears to have troughed and there are increasing reports of skills shortages in some areas.</p>
<p>Inflation is low and is likely to remain so for some time, reflecting low growth in labour costs and strong competition in retailing. A gradual pick-up in inflation is, however, expected as the economy strengthens. The central forecast is for CPI inflation to be a bit above 2 per cent in 2018.</p>
<p>Nationwide measures of housing prices are little changed over the past six months. Conditions in the Sydney and Melbourne housing markets have eased, with prices declining in both markets. Housing credit growth has declined, with investor demand having slowed noticeably. Lending standards are tighter than they were a few years ago, with APRA's supervisory measures helping to contain the build-up of risk in household balance sheets. Some further tightening of lending standards by banks is possible, although the average mortgage interest rate on outstanding loans has been declining for some time.</p>
<p>The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.</p>
</div>
</div>
<div class="box-enquiries"> </div>
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jrobinson-rf4aSBido9

Property investor demand slows noticeably: RBA Governor's July 2018 meeting statement

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<p>The sixth meeting of the Reserve Bank of Australia for 2018 saw no change in the official cash rate.</p>
<p>The central bank's last move saw it go to 1.5 percent at the August 2016 meeting, so rates have been held steady for 21 meetings.</p>
<p>It was 22 meetings ago that they last came down. </p>
<p>Almost every economist predicted another hold.</p>
<p>CoreLogic's head of research Tim Lawless said it's looking more and more likely the cash rate will hold throughout 2019.</p>
<p>"Economic conditions remain reasonably stable, housing market growth continues to slow, household debt is at record highs, and inflation remains around the lower end of the RBA target range," Lawless said.</p>
<p>"With this scenario as a backdrop, the hold decision today from the RBA was widely anticipated. </p>
<p>"It is looking increasingly as if the cash rate will hold at record lows throughout 2019; this is the view of financial markets where the ASX cash rate yield curve indicates the cash rate will remain on hold until at least November 2019."</p>
<p>He said focus is now moving to mortgage rates.</p>
<p>"We are increasingly seeing upwards pressure from overseas funding costs.</p>
<p>"Already, smaller banks and non-banks, who are generally more exposed to wholesale debt costs, are pushing interest rates higher for select mortgage products.</p>
<p>"Larger banks, who are more reliant on domestic deposits to fund their home loans, have less exposure to higher funding costs.</p>
<p>"However it is likely margin pressures are becoming evident across the big end of town as well. </p>
<p>"Despite these early signs of some upwards pressure on mortgage rates, average variable rates remain almost 120 basis points below their decade average of 6.4%.</p>
<p>"Borrowers, particularly owner occupiers with principal and interest loans, should continue to expect a low mortgage rate over the medium term.</p>
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RBA keeps rates on hold for record 21st consecutive meeting

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<p>Australia’s top economists were united in forecasting the cash rate would be held at the July cash rate meeting.</p>
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<div class="section">
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<div class="column">
<p><span>Here’s what the experts had to say: </span></p>
<p><span><strong>Jordan Eliseo, ABC Bullion</strong>: </span><span>​</span><span>"The RBA's view on monetary policy is clearly changing, with a more dovish tone at the very least pushing back the timeframe for rate hikes, if not already opening the door to an eventual rate cut, which is still our base case in the coming months. Growth figures and employment levels are still reasonable though, so they'll continue to take a "wait and see" approach for now." </span></p>
<p><span><strong>Tim Nelson, AGL Energy</strong>:</span><span>​ </span><span>"No change in underlying data from previous month." </span></p>
<p><span><strong>Shane Oliver, AMP Capital</strong>: </span><span>​</span><span>"There is no strong case to move either way just now. Signs that mining investment may bottoming, strengthening non-mining investment, surging infrastructure spending and rising export volumes all argue against a rate cut but peaking housing investment, uncertainty around consumer spending, continuing weak wages growth and inflation, falling Sydney and Melbourne property prices, tightening bank lending standards and global uncertainty around trade all argue against a hike. So it’s best for the RBA to remain on hold - for the 23rd month in a row." </span></p>
<p><span><strong>Alison Booth, ANU</strong>:</span><span>​ </span><span>"Fundamentals don't yet warrant any change."</span></p>
</div>
</div>
</div>
</div>
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<p><span><strong>Malcolm Wood, Baillieu Holst</strong>: </span><span>​</span><span>"Inflation at low-end of band; housing market rolling over; consumption uncertainties." </span></p>
<p><span><strong>Richard Robinson, BIS Oxford Economics</strong>:</span><span>​ </span><span>"There are no inflationary pressures, while house prices are now undergoing an orderly and much needed downward adjustment." </span></p>
<p><span><strong>Paul Dales, Capital Economics</strong>: </span><span>​</span><span>"There are still very few signs that inflation is going to rise back to the middle of the RBA's 2-3% target. And more recently, the RBA is becoming more concerned about the hit to the economy from the global trade dispute and domestic Banking Royal Commission." </span></p>
<p><span><strong>Saul Eslake, Corinna Economic Advisory Pty Ltd</strong>: </span><span>​</span><span>"The RBA will not have changed its overall view of the outlook for the Australian economy sufficiently to warrant either raising or lowering the cash rate. Economic growth (Q1 GDP) was a bit stronger than the RBA had been anticipating at the last meeting - and is arguably now back to its 'trend' pace. But the RBA's commentary on prospects for wages growth seems to have become a bit more pessimistic." </span></p>
<p><span><strong>Tim Moore, CUA (Credit Union Australia)</strong>: </span><span>​</span><span>"Until we see a strong trend in unemployment dropping toward the magic 5% level, we will continue to see low level inflation and low wage growth, therefore the RBA remaining on the sidelines. Whilst the RBA have clearly communicated their next move to be up, they have also caveated this with comment that they do not see this anytime soon." </span></p>
<p><span><strong>Peter Gilmore, Gateway Bank Ltd</strong>:</span><span>​ </span><span>"Key economic fundamentals are still short of the levels the RBA traditionally needs to trigger a rise." </span></p>
<p><span><strong>Peter Haller, Heritage Bank</strong>:</span><span>​ </span><span>"There is no justification for a rate change at the present time." </span><span>Shane Garrett, Housing Industry Association:</span><span>​ </span><span>"No grounds for monetary intervention in the short </span>term."</p>
<p><span><strong>Alex Joiner, IFM Investors</strong>: </span><span>​</span><span>"Despite good headline economic growth data the RBA clearly requires better wages growth to underpin what is still a weak inflationary pulse, consumer spending and household balance sheets." </span></p>
<p><span><strong>Michael Witts, ING</strong>:</span><span>​ </span><span>"No change on the horizon from the RBA, the next move will be up built a long way away." </span></p>
<p><span><strong>Leanne Pilkington, Laing+Simmons</strong>: </span><span>​</span><span>"The hold pattern remains appropriate in the current climate. Global economic forces, the widening wage gap between older and younger working Australians, and outcomes of the Banking Royal Commission might all impact the RBA’s outlook in the near term, but for now it’s important that interest rates remain steady." </span></p>
</div>
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<p><strong>Stephen Koukoulas, Market Economics​</strong>: "It has told the market it will be on hold until it has more economic information."</p>
</div>
</div>
</div>
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<p><span><strong>John Caelli, ME</strong>: </span><span>​</span><span>"The RBA has indicated they are in no rush to change policy." </span></p>
<p><span><strong>Michael Yardney, Metropole Property Strategists</strong>:</span><span>​ </span><span>"The RBA will hold interest rates steady because there has been no change to the economic outlook since last month. In fact rates are unlikely to rise until wages rise and that seems quite some way off." </span></p>
<p><span><strong>Mark Crosby, Monash University</strong>: </span><span>​</span><span>"RBA has signalled that it will hold for the next few meetings, unless a significant shock hits the economy." </span></p>
<p><span><strong>Dr Andrew Wilson, My Housing Market</strong>:</span><span>​ </span><span>"There remains no clear case for change, particularly given clearly weakening Sydney and Melbourne housing markets, continuing mixed local economic data and concerns over the global economy and rising trade barriers.” </span></p>
<p><span><strong>Alan Oster, NAB</strong>:</span><span>​ </span><span>"Waiting regarding data on wages and the consumer. Need lower unemployment rate. Inflation no pressure yet." </span></p>
<p><span><strong>Matthew Peter, QIC</strong>:</span><span>​ </span><span>"Philip Lowe has made it quite clear that the Bank will not be raising rates while annual wage growth languishes around 2%. He also has made it clear that there is no chance of a rate cut while household debt and house price remain elevated. The RBA can't cut and they can't hike." </span></p>
<p><span><strong>Nerida Conisbee, REA Group</strong>: </span><span>​</span><span>"Businesses are confident but consumers aren't. Until this turns around, I think it is unlikely we will see an interest rate rise." </span></p>
<p><span><strong>Christine Williams, Smarter Property Investing</strong>:</span><span>​ </span><span>"As much as the housing market has seemed to retract slightly there has been no major impact on the buying pool within the $500-$850K range. This range suits most first home buyers. Our unemployment rate has reduced slightly with the national rate around 6%. Whilst we are at this rate I doubt interest rates will move." </span></p>
<p><span><strong>Janu Chan, St.George Bank</strong>:</span><span>​ </span><span>"Ongoing strong conditions in the business sector and the high level of public infrastructure spending will support economic activity and employment growth. However, there is ongoing spare capacity in the labour market and wage growth and inflation is expected to remain low." </span></p>
<p><span><strong>Brian Parker, Sunsuper</strong>: </span><span>​</span><span>"Growth is improving, but not fast enough to deliver the much needed improvement in labour force underutilisation and wages growth." </span></p>
<p><span><strong>Clement Tisdell, UQ-School of Economics</strong>: </span><span>​</span><span>"No significant change in Australia's economic situation."</span></p>
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<p><span><strong>Mark Brimble</strong>:</span><span>​ </span><span>"We're not likely to see a movement for a long time, and the direct of that movement will depend on international markets so it's too early to tell which way it will go."</span></p>
</div>
</div>
</div>
</div>
</div>
</div>
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Australia's top economists united in RBA rate hold: Finder survey

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<div>
<span lang="en-AU">While the RBA are likely going to leave official interest rates on hold when they meet next Tuesday, it </span>hasn’t stopped lenders hiking rates out-of-cycle. </div>
<div><span lang="en-AU"> </span></div>
<div>
<span lang="en-AU">Heritage Bank is the most recent to hike rates, joining </span>Bank of Queensland, AMP, Auswide and IMB in raising variable home loan interest rates over the last week. </div>
<div><span lang="en-AU"> </span></div>
<div><span lang="en-AU">The increased cost of funding has put the squeeze on banks’ profit margins and some lenders are choosing to pass some of the cost onto borrowers.</span></div>
<div><span lang="en-AU"> </span></div>
<div>
<a id="LPlnk206699" href="https://www.ratecity.com.au/home-loans" target="_blank" rel="noopener noreferrer"><span id="LPlnk206699" lang="en-AU"></span></a><span lang="en-AU">RateCity spokesperson Sally Tindall said if the bank bill swap rate (BBSW) continues to rise we will see more lenders joining the party.</span>
</div>
<div><span lang="en-AU"> </span></div>
<div><span lang="en-AU">“Banks are weighing up whether they can wear the rising costs, or hike rates and risk customer backlash."</span></div>
<div><span lang="en-AU"> </span></div>
<div><span lang="en-AU">“After months of negative press generated by the Royal Commission, our banks are treading a fine line."</span></div>
<div><span lang="en-AU"> </span></div>
<div><span lang="en-AU">“We’ve seen a handful of smaller lenders hike rates, but so far nothing from the big four."</span></div>
<div><span lang="en-AU"> </span></div>
<div><span lang="en-AU">"It will be interesting to see how long they hold out.” Sally stated.</span></div>
<div><span lang="en-AU"> </span></div>
<div><span lang="en-AU"><img src="https://www.urban.com.au/images/2018/6/28/Ratecity%20graph%202.JPG" alt=""></span></div>
<div><span lang="en-AU"> </span></div>
<div>In the decade prior to 2008, Australia’s major banks moved their variable rates in line with the cash rate. </div>
<div> </div>
<div>When the RBA made a cut, so did the banks and by the same amount.</div>
<div> </div>
<div>As a result, the margin between the RBA cash rate and the major banks’ standard variable rates was consistently 1.8%, while the margin between their discounted variable rates was roughly 1.2%.</div>
<div> </div>
<div>But as the global financial crisis unfolded, the costs of funding started to climb.</div>
<div> </div>
<div>In January 2008, the major banks made their first out of cycle rate hike in almost nine years, sending shock waves through the public and resetting the industry standard for how interest rates are set.</div>
<div> </div>
<div> <img src="https://www.urban.com.au/images/2018/6/28/Ratecity%20graph%201.JPG" alt="">
</div>
<div> </div>
<div>Over the last decade banks have been making their pricing decisions based on a wide range of competing factors, leading to an ever-growing gap between the cash rate and the banks standard and discounted variable rates.  </div>
<div> </div>
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j.ballantyne1990-6AQqhLzZaK

More out-of-cycle home loan rate hikes to come: RateCIty

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<p>EXPERT OBSERVER</p>
<p>It’s nearly two years since the Reserve Bank of Australia last changed interest rates when it cut rates to a record low of 1.5% in August 2016.</p>
<p>That’s a record period of inaction – or boredom for those who like to see action on rates whether it’s up or down.</p>
<p>Of course, there are lots of views out that the RBA should be doing this or that – often held and expressed extremely – and so it’s natural that such views occasionally get an airing.</p>
<p>This is particularly so when the RBA itself is not doing anything on the rate front.</p>
<p>And so it’s been this week with a former RBA Board member arguing that the RBA should raise rates by 0.25% to prepare households for higher global interest rates and that the RBA should consider ditching its inflation target in favour of targeting nominal growth.</p>
<p>Our view – rates on hold at least out to 2020. Our view for some time is that the RBA won’t raise interest rates until 2020 at the earliest.</p>
<p>In terms of growth, a brightening outlook for mining investment, strengthening non-mining investment, booming infrastructure spending and strong growth in export volumes are all positive but are likely to be offset by topping dwelling investment and constrained consumer spending.</p>
<p>As a result, growth is likely to average around 2.5-3% which is below RBA expectations for growth to move up to 3.25%.</p>
<p>This in turn means that spare capacity in the economy will remain high – notably unemployment and underemployment at 13.9% – which will keep wages growth low and inflation down.</p>
<p><img src="https://www.urban.com.au/images/2018/6/29/Oliver%20chart%201.JPG" alt=""></p>
<p> </p>
<p>On top of this house prices likely have more downside in Sydney and Melbourne over the next two years, banks are tightening lending standards which is resulting in a defacto monetary tightening and the risks of a US-driven trade war are posing downside risks to the global growth outlook.</p>
<p>As such we remain of the view that a rate hike is unlikely before 2020 at the earliest and can’t rule out the next move being a cut.</p>
<p>Raising rates to prepare for higher rates makes no sense</p>
<p>Against this backdrop, raising rates just to prepare households for higher global rates would be a major policy mistake.</p>
<p>It would be like shooting yourself in the foot so you can practice going to hospital.</p>
<p>Some might argue that given high household debt you might miss the foot and hit something more serious – but I wouldn’t go that far! </p>
<p>What’s more it’s not entirely certain that outside the US higher global rates are on the way any time soon – particularly given the risks around a global trade war, the European Central Bank looks unlikely to be raising rates until 2020 and with Japanese inflation falling again a Bank of Japan rate hike looks years away.</p>
<p>The RBA needs to set Australian interest rates for Australian conditions not on the basis of other global economies that are in different stages in the cycle – notably the US which has unemployment and underemployment of just 7.6% in contrast to Australia where it’s 13.9%.</p>
<p>Raising rates when there is still high levels of labour market underutilisation, wages growth is weak and inflation is at the low end of the inflation target would just reinforce low inflation expectations – causing businesses and households to question whether the RBA really wants to get inflation and wage growth back up to be more consistent with the inflation target and run the risk of a slide into deflation next time there is an economic slowdown. </p>
<p>The RBA has already provided numerous warnings that sooner or later rates will go up, effectively helping to prepare households that such a move may come and in recent times banks have raised some mortgage rates, albeit only slightly.</p>
<p>Last year’s bank rate rises were in response to regulatory pressure and recently they have been in response to higher short-term money market funding costs as the gap between bank bill rates and the expected RBA cash rate has blown out by around 0.35% relative to normal levels.</p>
<p>This has further reminded households of the risk of higher interest rates.</p>
<p>Nor does changing the inflation target suggestions to change the inflation target or move to some other target for the RBA get wheeled out every time we run above or below the target for a while but its served Australia well.</p>
<p>When it’s above for a while like prior to the Global Financial Crisis some wanted to raise it, when it’s below for a while some want to cut it.</p>
<p>And there are regular calls to move to something else like nominal growth targeting.</p>
<p>But the case to change the target is poor.</p>
<p>The 2-3% inflation target interpreted as to be achieved over time has served Australia well.</p>
<p>It’s low enough to mean low inflation, it’s high enough to allow for the tendency of the measured inflation rate to exceed actual inflation (because the statistician tends to understate quality improvement) and to provide a bit of a buffer before hitting deflation.</p>
<p>And the achievement of it over time means the RBA does not have to make knee-jerk moves in response to under or overshoots because it can take time to get back to target.</p>
<p>Shifting to a nominal GDP or national income growth target would be very hard for Australia for the simple reason that nominal growth in the economy moves all over the place given swings in the terms of trade which the RBA has no control of.</p>
<p>It would have meant much tighter monetary policy into 2011 than was the case and even easier monetary policy a few years ago when the terms of trade fell.</p>
<p>In short it would mean extreme volatility in RBA interest rates. </p>
<p>And in any case, nominal GDP or income growth is made up of two different things – inflation and real growth – so targeting just the aggregate could lead to crazy results for example if the target is 4.5% the RBA could get 4.5% inflation and say it hit its target!</p>
<p>Which would be nuts. </p>
<p>Finally, while low rates risk inflating asset price bubbles it’s worth noting that apart from Sydney and Melbourne home prices, the period of low rates has not really led to a generalised asset price bubble problem in Australia.</p>
<p>And in any case as we have seen recently in relation to Sydney and Melbourne property prices - which are now falling (despite still ultra-low interest rates!) - the asset price problem where it does arise can be dealt with via macro prudential controls on lenders.</p>
<p>Arguably, if we had moved faster on the macro prudential front around 2014-2016 then the east coast housing markets would have been brought under control earlier and rates could have come down faster in Australia and we could now be in a tightening cycle… but that’s all academic!</p>
<p>Bottom line The bottom line is that the RBA should stick to its inflation target and ignore those arguing for a premature rate hike.</p>
<p>Our assessment is that this is just what it will do and that rates will be on hold for a long while yet.</p>
<p>In the meantime, the debate about rates will no doubt rage on.</p>
<p>Continuing low interest rates in Australia will mean term deposit rates will stay low, search for yield activity will still help yield-sensitive unlisted investments like commercial property and infrastructure (albeit it’s waning) and an on-hold RBA with a tightening Fed is likely to mean ongoing downward pressure on the Australian dollar as the interest rate differential goes further into negative territory.</p>
<p><img src="https://www.urban.com.au/images/2018/6/29/Oliver%20chart%202.JPG" alt=""></p>
<p> </p>
<p>While a crash in the $A may concern the RBA, we saw in both 2001 when it fell to $US0.48 and 2008 when it fell from $US0.98 to $US0.60 in just a few months that the inflationary consequences of a lower $A are not what they used to be and in any case the RBA would likely welcome a fall to around $US0.65-0.70. </p>
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