Statement by Glenn Stevens, Governor: Monetary Policy Decision - March 2012 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2012-03-06

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
6 March 2012
At its meeting today, the Board decided to leave the cash rate unchanged at
4.25 per cent.
Recent information is consistent with the expectation that the world economy
will grow at a below-trend pace this year, but does not suggest that a deep
downturn is occurring. Several European countries will record very weak outcomes,
but the US economy is continuing a moderate expansion. Growth in China has
moderated as was intended, but on most indicators remains quite robust overall.
Conditions around other parts of Asia softened in 2011, partly due to natural
disasters, but are not showing signs of further deterioration. Some moderation
in inflation has allowed policymakers in the region to ease monetary policies
somewhat. Commodity prices declined for some months and are noticeably off
their peaks, but over the past couple of months have risen somewhat and remain
at quite high levels.
The acute financial pressures on banks in Europe have been alleviated considerably
by the actions of policymakers, though there is more to do to put European
banks and sovereigns onto a sound footing for the longer term and Europe
will remain a potential source of shocks for some time yet. Financial market
sentiment has continued to improve in recent weeks and capital markets are
again supplying funding to corporations and well-rated banks, albeit at costs
that are higher, relative to benchmark rates, than in mid 2011.
Most information on the Australian economy continues to suggest growth close
to trend overall, with differences between sectors and considerable structural
change. Labour market conditions softened during 2011 and the unemployment
rate increased slightly in mid year, though it has been steady over recent
months. CPI inflation has declined as expected and will fall further over
the next quarter or two. In underlying terms, inflation is around
2½ per cent.
Over the coming one to two years, and abstracting
from the effects of the carbon price, the Bank expects inflation to be in
the 2–3 per cent range. This forecast embodies an expectation
that productivity growth will improve somewhat as a result of the structural
change occurring in the economy.
Interest rates for borrowers have generally risen slightly since the Board's
previous meeting, but remain close to their medium-term average. Credit growth
remains modest. Housing prices have shown some sign of stabilising recently,
after having declined for most of 2011, but generally the housing market
remains soft. The exchange rate has risen over recent months, even though
the terms of trade have declined.
With growth expected to be close to trend and inflation close to target, the
Board judged that the setting of monetary policy remained appropriate for
the moment. Should demand conditions weaken materially, the inflation outlook
would provide scope for easier monetary policy. The Board will continue to
monitor information on economic and financial conditions and adjust the cash
rate as necessary to foster sustainable growth and low inflation.
Dr Christopher Kent
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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