Statement by Glenn Stevens, Governor: Monetary Policy - December 2007 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2007-12-05

Media Release
Statement by Glenn Stevens, Governor: Monetary Policy
5 December 2007
At its meeting yesterday, the Board decided to leave the cash rate
at 6.75 per cent. As part of wider changes
to communication practices which the Board has adopted (see separate announcement
on communication), it was further decided that a statement explaining the
decision would be released.
Recent information continues to indicate strength in demand and output in Australia,
with the economy having relatively little surplus capacity. Inflation on
a year ended basis, as measured by the CPI and underlying measures, is likely
to be above 3 per cent in the first half of 2008, and to decline
somewhat thereafter.
Sentiment in global credit markets has deteriorated recently after an earlier improvement
and prospects for growth in the major economies appear to be weakening. It
is unclear to what extent that will affect Asia, where conditions at this
point look quite strong. But overall, it now appears likely that global growth
will be closer to trend in 2008, after several years of above trend growth.
High prices for food, energy and natural resources, however, continue to
pose a significant risk to inflation around the world.
In Australia, the pressures arising from the global financial turmoil have been less
pronounced than elsewhere, and the flow of credit to sound borrowers does
not appear to have been impaired. Nonetheless borrowing costs have risen
appreciably since mid year, particularly for business borrowers, as a result
both of changes in monetary policy and market-driven increases in funding
costs for intermediaries. Depending on conditions in wholesale markets in
the near term, some further rise in rates charged to borrowers may yet occur.
These developments will help to contain private demand over the period ahead.
The Board remains concerned about the outlook for inflation. But given the heightened
uncertainty about the international outlook and the local trends in wholesale
borrowing costs, both of which could have a bearing on inflation over the
medium term, it judged that the current stance of monetary policy should
be maintained for the time being.
Dr Malcolm Edey
Assistant Governor (Economic)
Phone: +61 2 9551 8800
Dr Guy Debelle
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
Manager, Media Office
Information Department