Statement by the Governor, Mr Ian Macfarlane: Monetary Policy - April 2001 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2001-04-04

Media Release
Statement by the Governor, Mr Ian Macfarlane: Monetary Policy
4 April 2001
Following a decision taken by the Board at its meeting yesterday, the Bank will be
operating in the money market this morning to reduce the cash rate by a further
50 basis points to 5.0 per cent.
The most recent information suggests that the trend towards weaker international
economic conditions has continued. This is being led by the United States,
where business and consumer confidence has weakened noticeably against the
background of a rapidly falling share market. A number of other countries,
including importantly for Australia those in east Asia, have also recently
shown signs of slower economic growth. World interest rates are declining
in response to these conditions.
Real GDP fell in the December quarter, resulting in a small net decline in activity
over the second half of 2000. The fall in dwelling investment, the speed
of which was unprecedented and unexpected, explains this result. This housing
downturn was a temporary factor, albeit a large one, and that sector should
recover in the course of 2001. But in the interim, indirect impacts of the
housing downturn are being felt in other parts of the economy. Hence, overall
growth is well below longer-run potential, which is likely to keep inflationary
pressures controlled in the short term, even though the exchange rate has
fallen further in recent months and wages growth has edged higher.
The Board remains firmly of the view that the economy's medium-term growth prospects
are very good, but recognises that two risks to short-term growth exist.
The first comes from the weaker world economy. Against this, the exchange
rate gives a major competitive edge to the traded sector. The second risk
is that, notwithstanding strong medium-term prospects for growth, confidence
could weaken in such a way as to further dampen domestic demand in the short
term. The Board views it as prudent for monetary policy to help support domestic
demand under such circumstances. Today's action, together with the earlier
reductions in interest rates, is directed to that end.
Mr G.R. Stevens
Assistant Governor (Economic)
(02) 9551 8800
Mr R. Battellino
Assistant Governor (Financial Markets)
(02) 9551 8200