Statement by Glenn Stevens, Governor: Monetary Policy Decision - August 2010 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2010-08-03

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
3 August 2010
At its meeting today, the Board decided to leave the cash rate unchanged at 4.5 per cent.
The global economy grew faster than trend over the year to mid 2010. The expansion
has been uneven, with the major advanced countries recording only moderate
growth overall but growth in Asia and Latin America very strong. There are
indications that growth in China is moderating to a more sustainable rate
as policies are now less accommodating. Similar adjustments to policies and
growth rates are occurring in other countries in the Asian region. In Europe,
while output in some key countries has been improving significantly, prospects
for next year are more uncertain given planned fiscal contraction. US growth
was stronger in the first half of 2010 but the pace of labour market improvement
has been slow and the expansion may be somewhat lacklustre in the second
half of 2010. Overall, the Bank expects global growth to be about trend over
the coming year.
The caution evident in financial markets in the past few months has abated of late,
helped by the disclosure of information about European banks. Nonetheless,
the global outlook remains somewhat more uncertain than a few months ago
and this is reflected in the volatility of financial prices. Commodity prices
are off their peaks but those most important for Australia remain at very
high levels, and the terms of trade are around their peak of two years ago.
With the high level of the terms of trade expected to add to incomes and demand,
output growth in Australia over the year ahead is likely to be about trend,
even though the effects of earlier expansionary policy measures will be diminishing.
Consumption spending is recording a modest increase at present, with households
displaying a degree of caution, but most indicators suggest business investment
will increase over the coming year. Business credit has stabilised, though
credit conditions for some sectors remain difficult. Credit outstanding for
housing has continued to expand, but the upward pressure on dwelling prices
appears to have abated.
The labour market has continued to firm gradually, and after the significant decline
last year, growth in wages has picked up a little, as had been expected.
Recent data for inflation were consistent with the Bank's May forecasts,
with underlying inflation declining to about 2¾ per cent,
the lowest rate for about three years. The rate of CPI increase was a little
above 3 per cent due to the effects of increases in tobacco taxes announced
earlier in the year. Through to mid 2011, underlying inflation is likely
to be in the top half of the target zone, while CPI inflation will probably
be just above 3 per cent for a few quarters due to the impact of
the tax changes and increases in utilities prices.
The current setting of monetary policy is resulting in interest rates to borrowers
around their average levels of the past decade. With growth likely to be
close to trend, inflation close to target and the global outlook remaining
somewhat uncertain, the Board judged this setting of monetary policy to be
appropriate.
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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