Statement by Glenn Stevens, Governor: Monetary Policy Decision - December 2011 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2011-12-06

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
6 December 2011
At its meeting today, the Board decided to lower the cash rate by 25 basis
points to 4.25 per cent, effective 7 December 2011.
Growth in the global economy has moderated this year after a strong performance
in 2010. Some of the slowing reflected temporary factors, and as these passed,
the pace of expansion in the United States and much of Asia began to pick
up around mid year. China's growth has been slowing, as policymakers
there had intended. Trade in Asia is now, however, seeing some effects of
a significant slowing in economic activity in Europe.
The sovereign credit and banking problems in Europe, to which European governments
are still seeking to craft a full response, are likely to weigh on economic
activity there over the period ahead. Financial markets have experienced
considerable turbulence, and financing conditions have become much more difficult,
especially in Europe. This, together with precautionary behaviour by firms
and households, means that the likelihood of a further material slowing in
global growth has increased. Commodity prices have reflected this, declining
further over recent months and taking pressure off CPI inflation rates. This
has increased the scope for some easing in monetary policy in a number of
countries.
Information about the Australian economy suggests output growth has been close
to trend, with demand growth stronger than that. The terms of trade have
now peaked and will decline somewhat in the near term, but they remain very
high. In response, investment in the resources sector is picking up very
strongly, with much more to come. Some related service sectors are enjoying
better-than-average conditions. In other sectors, changed behaviour by households
and the high exchange rate have had a noticeable dampening effect. The unemployment
rate has increased a little since mid year, though it remains close to 5 per cent.
CPI inflation on a year-ended basis remained above the target at the latest
reading, due to the effects of weather events last summer, but is now starting
to decline as production of key crops recovers. Moreover, with labour market
conditions now softer, the likelihood of a significant acceleration in labour
costs outside the resources and related sectors in the near term has lessened.
Accordingly, the Bank's current judgement is that inflation is likely
to be consistent with the 2–3 per cent target in 2012 and 2013, abstracting
from the impact of the carbon pricing scheme.
The reduction in the cash rate as a result of the Board's previous decision flowed
through to lending rates, which are now around their average level of the
past 15 years. Short-term market interest rates have tended to decline a
little further in recent weeks, though term funding conditions for financial
institutions have become more difficult. Credit growth remains subdued and
asset prices have declined further over recent months. The exchange rate
has been quite variable over the past few months, but remains at an historically
high level.
Overall, the Board concluded, on the basis of all the available information,
that the inflation outlook afforded scope for a modest reduction in the cash
rate. The Board will continue to set policy as needed to foster sustainable
growth and low inflation over time.
Dr Philip Lowe
Assistant Governor (Economic)
Phone: +61 2 9551 8800
Dr Guy Debelle
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
Media Office
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