Statement by Glenn Stevens, Governor: Monetary Policy Decision - March 2010 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2010-03-02

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
2 March 2010
At its meeting today, the Board decided to raise the cash rate by 25 basis points
to 4.0 per cent, effective 3 March 2010.
The global economy is growing, and world GDP is expected to rise at close to trend
pace in 2010 and 2011. The expansion is still hesitant in the major countries,
due to the continuing legacy of the financial crisis, resulting in ongoing
excess capacity. In Asia, where financial sectors are not impaired, growth
has continued to be quite strong. The authorities in some countries are now
seeking to reduce the degree of stimulus to their economies.
Global financial markets are functioning much better than they were a year ago and
the extraordinary support from governments and central banks is gradually
being wound back. Credit conditions remain difficult in some major countries
as banks continue to face loan losses associated with the period of economic
weakness. Concerns regarding some sovereigns remain elevated.
In Australia, economic conditions in 2009 were stronger than expected, after a mild
downturn a year ago. The rate of unemployment appears to have peaked at a
much lower level than earlier expected. Labour market data and a range of
business surveys suggest growth in the economy may have already been at or
close to trend for a few months. There are some signs that the process of
business sector de-leveraging is moderating, with the pace of decline in
business credit lessening and indications that lenders are starting to become
more willing to lend to some borrowers. Investment in the resources sector
is very strong. Credit for housing has been expanding at a solid pace, and
dwelling prices have risen significantly over the past year. New loan approvals
for housing have moderated a little over recent months, however, as interest
rates have risen and the impact of large grants to first-home buyers has
tailed off.
Inflation has, as expected, declined in underlying terms from its peak in 2008, helped
by the fall in commodity prices at the end of 2008, a noticeable slowing
in private-sector labour costs during 2009, the rise in the exchange rate
and the earlier period of slower growth in demand. CPI inflation has risen
somewhat recently as temporary factors that had been holding it to unusually
low rates are now abating. Inflation is expected to be consistent with the
target in 2010.
With the risk of serious economic contraction in Australia having passed, the Board
moved late last year to lessen the degree of monetary stimulus that had been
put in place when the outlook appeared to be much weaker. Lenders generally
raised rates a little more than the cash rate and most loan rates rose by
close to a percentage point.
Interest rates to most borrowers nonetheless remain lower than average. The Board
judges that with growth likely to be close to trend and inflation close to
target over the coming year, it is appropriate for interest rates to be closer
to average. Today's decision is a further step in that process.
Dr Philip Lowe
Assistant Governor (Economic)
Phone: +61 2 9551 8800
Dr Guy Debelle
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
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