housing market was in fact higher than previously thought. as you know, apra announced a number of supervisory measures in december last year to strengthen mortgage lending standards. these measures included expectations that : • banks should not be increasing their share of higher risk lending • growth in investor lending should not be materially above 10 per cent bis central bankers ’ speeches • appropriate interest rate floors and buffers should be applied in serviceability assessments. it will take time for the full impact of these measures, and of the more recently announced increases in bank lending rates, to become apparent. nonetheless, the indications to date are that the supervisory measures are having a beneficial effect on lending standards and are assisting in restraining new investor finance. there is also some tentative evidence that sentiment may now be turning in the housing markets in the two largest cities. but it is much too early to be definitive about that. what we can say is that the risks in that sector are now being more prudently managed than they were a year or so ago. the second main area of risk focus domestically is in commercial property. historically this has been a common source of financial instability both here and abroad. during the height of the gfc, australian banks remained in comparatively good shape but they did suffer a noticeable deterioration in asset performance, with the aggregate non - performance rate rising to just under 2 per cent of loans. a significant part of that deterioration was in commercial property lending ; impaired commercial property exposures accounted for around 30 per cent of australian banks ’ non - performing domestic assets at that time. after the post - crisis downturn, the commercial property sector is again experiencing strong investor demand, and bank lending to the sector is increasing. however there are a number of signs of increasing risk. trends in commercial property prices and rents have been diverging over the past few years, with prices continuing to rise while rents have been flat to down ( graph 4 ). as a result, yields have declined. at the same time, vacancy rates have been increasing. graph 4 click to view larger as in the housing market, conditions have not been uniform across the country, and they have been noticeably firmer in sydney and melbourne than in other centres. but in aggregate, the major categories of commercial property have all seen downward pressure on yields over recent years. strong demand from foreign buyers has contributed to this, reflecting the global environment of low interest rates and “ search for yield ” ( graph 5 ). the bis central bankers ’ speeches risks appear manageable at

re experiencing today. low r - star those of you who know me won ’ t be surprised that i ’ m starting with low r - star! the neutral rate of interest — the rate that prevails when monetary policy is neither restrictive nor accommodative — has been an area of study, and a personal passion, for the past two decades. i could talk about r - star at great length, but you may be relieved to hear that for the purpose of this speech, there ’ s just one point i want to make : r - star has fallen, not only in the u. s., but around the world. 1 / 4 bis central bankers'speeches fundamental shifts have been occurring in the two main drivers of r - star over the past two decades : demographics and productivity growth. lower fertility rates and aging populations, as well as slower productivity growth, have pushed down r - star by as much as two percentage points in a number of developed nations. these structural shifts are having fundamental effects on real interest rates, growth, and inflation. a number of advanced economies have inflation below desired levels and longer - term interest rates that are well below where they were a decade ago. there are, of course, a few outliers, but the commonalities between the world ’ s developed economies are becoming more and more apparent. there ’ s no doubt that the u. s. is experiencing first - hand the effects of the structural shifts in demographics and productivity growth. but the fact that these changes are a common experience for so many developed economies creates challenges to our economic prospects at home. slowing global growth which brings me to the second trend i highlighted : slowing global growth. this story — of low interest rates, low inflation, and slow growth — is showing up in the data. the latest numbers from the international monetary fund ( imf ) follow the recent trend of steady downward revisions of growth estimates. their forecast for global growth for 2019 is now 3 percent, which is the lowest since 2008 – 09, and it ’ s not hard to think of scenarios in which growth slows even further. 1 in the old days, central bankers used to worry about inflationary pressures being too great. old habits die hard, and i ’ m always on the lookout for signs that inflation is rising too fast. but in the current climate it ’ s inflation that ’ s too low that ’ s of greater concern. you see, my five - dollar cup of coffee masks an