Statement by Glenn Stevens, Governor: Monetary Policy - March 2008 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2008-03-04

Media Release
Statement by Glenn Stevens, Governor: Monetary Policy
4 March 2008
At its meeting today, the Board decided to increase the cash rate by 25 basis points
to 7.25 per cent, effective 5 March 2008.
This adjustment was made in order to contain and reduce inflation over the medium
term. Inflation was high in 2007, with an annual CPI increase of 3 per
cent in the December quarter and underlying measures around 3½ per cent.
Domestic demand grew at rates appreciably higher than the growth of the economy's
productive capacity over the year. Labour market conditions remained strong
into early 2008 and reports of high capacity usage and shortages of suitable
labour persist. Inflation is likely to remain relatively high in the short
term, and will probably rise further in year‑ended terms, before moderating
next year in response to slower growth in demand.
The Board took account of events abroad and developments in financial markets. The
world economy is slowing and it appears likely that global growth will be
below trend in 2008. Recent trends in world commodity markets, however, have
further strengthened prospects for Australia's terms of trade.
Sentiment in global financial markets remains fragile. Australian financial intermediaries
are experiencing increases in funding costs, which are being passed on to
customers. Some tightening in credit standards for more risky borrowers is
occurring.
There is tentative evidence that some moderation in household demand is beginning
to occur, with business and consumer sentiment softer recently, and household
credit demand slowing somewhat. The extent of that moderation is uncertain,
however. As the Board noted last month, a significant slowing in demand from
its pace of last year is likely to be necessary to reduce inflation over
Having weighed both the international and domestic information available, the Board
concluded that a further tightening in monetary policy was needed to secure
an inflation rate of 2‑3 per cent over time. As a result of this
and earlier actions, and rises in borrowing costs which are occurring independently
of changes in the cash rate, the overall tightening in financial conditions
since the middle of 2007 is substantial. The Board will continue to evaluate
prospects for economic activity and inflation in the light of new information.
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