Statement by the Governor, Mr Ian Macfarlane: Monetary Policy - November 1999 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 1999-11-03

Media Release
Statement by the Governor, Mr Ian Macfarlane: Monetary Policy
3 November 1999
Following a decision by the Board at yesterday's meeting, the Bank will be acting
in the money market this morning to increase the cash rate by 25 basis points,
to 5.0 per cent.
The international economic environment has improved considerably since last December,
when the previous adjustment to monetary policy was made. At that time, world
growth was expected to be weak, global inflation was tending to fall and
international interest rates were declining. The likelihood of some decline
in Australia's growth and the continuing very low inflation allowed scope
for monetary policy to move in the expansionary direction. As things have
turned out, global growth this year has been a good deal stronger than expected,
and a further strengthening appears likely in 2000. Most of Australia's Asian
trading partners are in recovery, and global disinflationary forces have
abated. The Australian economy is growing faster than the Bank or most other
forecasters had expected.
At the same time, inflation has now returned to the 2–3 per cent target zone, after
a lengthy period of being below target. The CPI increased by 1.7 per cent
over the year to the September quarter. This figure was held down by the
effects of the health care rebate; abstracting from this, the CPI increase
was a little over 2 per cent over the year. Some of the increase in inflation
has come from higher oil prices, but core or underlying measures of inflation,
which exclude oil prices, have also run at about 2 per cent over the past
year. Some further gradual increase in inflation is likely over the next
two or three quarters.
The stance of monetary policy has been expansionary over the past couple of years.
Interest rates in real and nominal terms for virtually all borrowers have
been below the low points reached in the early 1990s, and credit growth has
been strong. This was the appropriate setting of policy through the period
when the forces affecting the economy from abroad were contractionary. The
need for such an expansionary setting has now passed, and accordingly, the
Board has decided to increase cash rates modestly, so as to take policy to
a less expansionary setting.
This adjustment will not bring to an end the current expansion, now in its ninth
year, nor is it designed to do so. On the contrary, it is designed to keep
the setting of policy attuned to the economy's changing needs, so as to maintain
inflation of 2–3 per cent over the medium term. This will prolong the expansion,
and a long, steady expansion offers the best chance to achieve further progress
in reducing unemployment.
Mr G.R. Stevens
Assistant Governor
(Economic)
(02) 9551 8800
Mr R. Battellino
Assistant Governor
(Financial Markets)
(02) 9551 8200