Economy & Property - September 2025

September 2025: Rate Decision, Property & Economy 

The RBA announced its sixth decision for 2025, leaving the official cash rate at 3.60%. 

Markets were not expecting a fourth interest rate cut in this cycle, with some signs of life in the economy, including headline economic growth. This combined with other data results indicate that expectations around the timing of any further cuts remains delayed.

The "Direction for Local Interest Rates" (see below) shows market expectations for further rate drops are diminishing.

Soft Landing?

The RBA may now be feeling they have achieved a “perfect economic landing,” slowing inflation to within its 2–3% target, without delivering a material rise in unemployment or an economic recession (though we argue there is one on a Per Capita basis).   

For this to have any sustained substance, the private sector will have to take the lead, as we have discussed many times.   

Inflation - The Ability to Surprise.

ABS data showed headline inflation increased to 3% in August, up from 2.8% in July.  Whilst this rise was largely due to the annual lift in household electricity bills, this still sent a shiver across markets. Bond markets in particular are brutal these days.  In short, although the RBA focuses on the "annual trimmed mean inflation", it is likely that the September quarter's results will end up above the RBA’s 2.5% forecast.

RBA Positioning

The message from the Governor last time was very consistent, there was inflation of course and reference to global events:

“Uncertainty in the world economy remains elevated. There is a little more clarity on the scope and scale of US tariffs and policy responses in other countries, suggesting that more extreme outcomes are likely to be avoided."

Shares & Markets

The Australian equity market was weaker over the last month, having pulled back from an all-time high reached in early August. Volatility persisted due to ongoing global trade uncertainties but demand for equities remains strong.

Normally, all time highs would spark commentary of a bubble and yes, there is always a macro-economic short waiting to happen. However, with rising superannuation flows, equities have become the default savings vehicle for so many people that this asset class may need to be considered in a changing light into the future.

Equity Markets Worldwide

Relative stability on global affairs and generally easing interest rates was well received by markets. The 5 Year performance becomes a good measurement, as when it aligns more in developed economies it shows some measure of stability.  

Japan is really the story - back to its glory days? The most notable factor is that the gains were broad-based, rather than speculative. This included tech to consumer, financials, and exporters. A falling interest rate in the U.S. plus clarity on the tariff position are material factors.

The US market continued its growth and their September rate cut was supportive of demand.

Direction for Local Interest Rates?

There was a large change regarding future rate trends with the market basically wiping out expectations of a full rate cut.

As a result, the ASX Cash Rate graph flattens out, especially when compared to the previous period.

Mirroring this, our government bonds sold off sharply after the higher inflation result - sending the 3-year yield up 17 basis points.

Interest Rates Worldwide

The story of central banks worldwide is still looking to an easing bias. In some countries even more cuts are possible, although not guaranteed.

New Zealand's central bank cut its Official Cash Rate to 3.00% in September, resuming cuts that now total 250 basis points since August 2024. The RBNZ signalled further cuts, should weak GDP and soft growth data continue. 

The U.S. Federal Reserve again cut rates by 25 points, cutting the federal funds target range to 4.00% – 4.25%. The cut arrives amid slowing employment growth and inflation holding under 3.0% in August, with further reductions still possible, however it is not a clear path ahead.

In the UK, The Bank of England delivered a 25 basis point rate cut in August to 4.0%, but held steady in its last meeting. The majority of policymakers are taking a wait-and-see approach. This pause reflects concerns about renewed inflationary conditions. Future cuts are still expected but not at the pace originally anticipated.

The Bank of Canada dropped rates by 25 basis points to 2.50% — staunch in their commitment to combat sluggish growth and ease inflation pressure.

Central Bank Cash Rates

Before posting any changes today, we compare central bank cash rates and their longer-term 10-year bond yields.

Again this period, the spread between Cash and the 10-Year was largely unchanged.  If anything, Australia (see analysis below) and the UK will like these settings while the US & Japan are way off what we would call a normal spread. 

Local Money Markets

Australia’s Money Market was busy this period.  

The average spread between the cash rate and the 10-year government bond yield is historically around 80 basis points (0.8%), which is where we are at now. This spread reflects the return investors require for lending for a longer term, incorporating inflation risk, economic outlook, and interest rate expectations.

As our Federal Government Debt approaches $1 Trillion, the relative attractiveness of our bond yields mean we can keep borrowing to sustain our deficits. (NB: The Australian government’s gross debt is now 37% of GDP, upfront from 5% in 2010).

Residential Property Performance

The latest monthly residential property results from Cotality (see table below) rose by 0.8% overall in August in both city and regional areas. Momentum has shifted again towards vendors, particularly as interest rates fall and supply constraints remain a factor.

Property Trends

Brisbane, Adelaide and Perth have set another record high. The momentum seemed to slow but then ramped up once again.

Commercial & Industrial

We wrote last month that confidence was slowly returning as sellers adjust pricing expectations. Tenants are taking less space, but wanting much better quality stock. Sub-leasing activity is also down as well.

This hopefully means results based on "normal" operating conditions. Since COVID-19 and the subsequent yo-yo of interest rates it has been hard to know what normal is. Businesses appear to be "right-sizing" their space and any growth from this point should be driven by the normal factors such as employment and interest rate settings.

Business Conditions

According to NAB Research, Australian business conditions showed some signs of life after a lengthy slowdown. The NAB Business Conditions Index rose, matching its long-run average. Notably, sectors that had been weak—such as manufacturing and retail also showed as improved, supported by stronger consumer spending and lower interest rates.

Victoria had its first positive move in business confidence and conditions since early last year, but recovery remains weak. There were signs of improvements in manufacturing and retail, though employment demand continues to lag national averages. South Australia remains weak, which is at odds with its residential property performance.

Currency Wrap-Up

The Australian dollar was slightly stronger against the USD though it was a yo-yo of ups and downs during the period.

There is a mix of black and red ink which is really on the back of diverse sentiment in different regions.

Stronger commodity prices for Australian exports such as copper and gold provided support. Though this is also balanced against uncertainty around ongoing demand for exports from China, our key trading partner. As always, the AUD is a sensitive currency and volatile to shifts in global sentiment.

2025 RBA Policy Announcement Dates

We hope you enjoyed our sixth Economy & Property Insights post for 2025, thank you for reading.

Monetary Policy Announcements will be made at 2.30pm on the remaining Tuesdays in 2025:

•    4 November
•    9 December

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