Statement by Glenn Stevens, Monetary Policy - May 2009 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2009-05-05

Media Release
Statement by Glenn Stevens, Governor: Monetary Policy
5 May 2009
At its meeting today the Board decided to leave the cash rate unchanged at 3.0 per
The global economy contracted further during the first few months of this year. While
the near-term outlook remains weak, there are further signs of stabilisation
in several countries. The Chinese economy in particular has picked up speed
in recent months and many commodity prices have firmed a little. The considerable
economic policy stimulus in train in most countries should help contain the
downturn and support an eventual recovery.
Conditions in global financial markets remain generally on a path of gradual improvement,
with equity prices off their lows, term spreads declining and capital markets
re‑opening. Nonetheless, confidence remains fragile and balance sheets
are under pressure from the effects of economic weakness on asset quality.
Credit remains tight. Continued progress in restoring balance sheets remains
essential to durable recovery.
The Australian economy contracted in the latter part of 2008, and this has continued
in 2009 to date, with both domestic and international demand weaker. Capacity
utilisation has fallen back to about average levels, and will decline further
over the rest of the year. With demand for labour weakening, growth in labour
costs will probably also fall. These conditions are likely to see inflation
continue to abate, though this is occurring only gradually so far, as the
effects of the decline in the exchange rate are pushing up some prices.
Australian markets have seen a decline in term spreads and firmer equity prices over
recent months. Borrowing for housing is picking up, particularly among first-home
buyers. Business borrowing, on the other hand, is declining, as companies
curtail investment plans and seek to reduce leverage, in an environment of
tighter lending standards.
Monetary policy has been eased significantly. Market and mortgage rates are at very
low levels by historical standards and business loan rates are below average,
reducing debt‑servicing burdens considerably. Much of the effect of
these changes is yet to be observed. The stance of monetary policy, together
with the substantial fiscal initiatives, will provide significant support
to domestic demand over the period ahead.
In assessing whether further reductions in the cash rate are required over the period
ahead, the Board will monitor how economic and financial conditions unfold,
and how they impinge on prospects for a sustainable recovery in economic
Dr Philip Lowe
Assistant Governor (Economic)
Phone: +61 2 9551 8800
Dr Guy Debelle
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
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