Statement by Glenn Stevens, Governor: Monetary Policy Decision - October 2011 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2011-10-04

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
4 October 2011
At its meeting today, the Board decided to leave the cash rate unchanged at 4.75 per
Conditions in global financial markets have continued to be very unsettled, with
uncertainty increasing about both the prospects for resolution of the sovereign
debt and banking problems in Europe, and the outlook for global economic
growth. While temporary impediments that had contributed to a slowing in
growth in some countries over recent months are lessening, recent data suggest
a continuing period of soft economic conditions in both Europe and the United
States. Moreover, the uncertainty and financial volatility have reduced confidence,
which could result in more cautious behaviour by firms and households in
major countries.
It will take more time for evidence of any effects of the recent European and US
financial turbulence on economic activity in other regions to emerge. Thus
far, indications are that economic activity is continuing to expand in China
and most of Asia. Nonetheless, recent events have led forecasters to reduce
their estimates for global GDP growth, which is now expected to be about
average this year and next. Prices for commodities have declined over recent
weeks, though in general they remain high.
Australia's terms of trade are very high, which has increased national income
considerably. Investment in the resources sector is picking up very strongly
and some related service sectors are enjoying better than average conditions.
In other sectors, cautious behaviour by households and the earlier rise in
the exchange rate have had a noticeable dampening effect. The impetus from
earlier Australian Government spending programs is now also abating, as had
been intended. While there remain good reasons to expect solid growth over
the medium term, the indications are that the pace of near-term growth is
unlikely to be as strong as earlier expected, due both to local and global
factors, including the financial turmoil and related effects on business
confidence.
Underlying inflation stopped falling and began to increase earlier this year. The
Board has been concerned about the prospect of a further pick-up over the
period ahead, but over recent months has been weighing the question of whether
a period of weaker than expected conditions would contain that pick-up in
inflation. Recently revised data show a pick-up to date in the underlying
pace of price rises that was less sharp than initially indicated. Moreover,
with labour market conditions now a little softer and households more concerned
about the possibility of unemployment rising, the likelihood of a significant
acceleration in labour costs outside the resources and related sectors is
lessening.
Taking into account all the recent information, the path for inflation may now be
more consistent with the
2–3 per cent
target in 2012 and 2013, abstracting from the impact
of the carbon pricing scheme. This assessment will be reviewed on receipt
of further data on prices ahead of the Board's next meeting. An improved
inflation outlook would increase the scope for monetary policy to provide
some support to demand, should that prove necessary.
The Board noted that financial conditions have been easing somewhat, with interest
rates for some housing and business loans declining slightly due to increased
competition and the fall in some funding costs in financial markets. The
exchange rate has also declined from the very high levels of a few months
ago. Credit growth remains low, however, and asset prices have declined.
At today's meeting the Board judged the current cash rate remained appropriate.
As always, the Board will continue to assess carefully the evolving outlook
for growth and inflation.
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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