Statement by Glenn Stevens, Governor: Monetary Policy Decision - August 2014 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2014-08-05

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
5 August 2014
At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent.
Growth in the global economy is continuing at a moderate pace, helped by firmer conditions
in the advanced countries. China's growth remains generally in line with
policymakers' objectives. Commodity prices in historical terms remain
high, but some of those important to Australia have declined this year.
Financial conditions overall remain very accommodative. Long-term interest rates
and risk spreads remain very low. Emerging market economies are receiving
capital inflows. Volatility in many financial prices is currently unusually
low. Markets appear to be attaching a very low probability to any rise in
global interest rates, or other adverse event, over the period ahead.
In Australia, growth was firmer around the turn of the year, but this resulted mainly
from very strong increases in resource exports as new capacity came on line;
smaller increases in such exports are likely in coming quarters. Moderate
growth has been occurring in consumer demand. A strong expansion in housing
construction is now under way. At the same time, resources sector investment
spending is starting to decline significantly. Signs of improvement in investment
intentions in some other sectors are emerging, but these plans remain tentative
as firms wait for more evidence of improved conditions before committing
to significant expansion. Public spending is scheduled to be subdued. Overall,
the Bank still expects growth to be a little below trend over the year ahead.
There has been some improvement in indicators for the labour market this year, but
it will probably be some time yet before unemployment declines consistently.
Recent data showed an increase in inflation, with both headline and underlying
measures affected by the decline in the exchange rate last year. But growth
in wages has declined noticeably and is expected to remain relatively modest
over the period ahead, which should keep inflation consistent with the target
even with lower levels of the exchange rate.
Monetary policy remains accommodative. Interest rates are very low and for some borrowers
have continued to edge lower over recent months. Savers continue to look
for higher returns in response to low rates on safe instruments. Credit growth
has picked up a little, including most recently to businesses. The increase
in dwelling prices has been slower this year than last year, though prices
continue to rise. The exchange rate remains high by historical standards,
particularly given the declines in key commodity prices, and hence is offering
less assistance than it might in achieving balanced growth in the economy.
Looking ahead, continued accommodative monetary policy should provide support to
demand and help growth to strengthen over time. Inflation is expected to
be consistent with the 2–3 per cent target over the next
two years.
In the Board's judgement, monetary policy is appropriately configured to foster
sustainable growth in demand and inflation outcomes consistent with the target.
On present indications, the most prudent course is likely to be a period
of stability in interest rates.
Media Office
Information Department