Statement by the Governor, Mr Ian Macfarlane: Monetary Policy - June 2002 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2002-06-05

Media Release
Statement by the Governor, Mr Ian Macfarlane: Monetary Policy
5 June 2002
Following a decision taken by the Board at its meeting yesterday, the Bank will be
acting in the money market this morning to increase the cash rate by 25 basis
points, to 4.75 per cent.
Recent indicators have confirmed that the global economic recovery under way since
the beginning of the year is continuing, even though the pace of growth across
the major regions is still uneven. In the United States, the strong GDP growth
recorded in the first quarter has been followed by a number of indicators
of further growth in spending and production, suggesting that a good second
quarter result is in prospect. Hence, while the US outlook is still subject
to some significant uncertainties, the recovery is continuing. Conditions
in the Euro area have been firmer in recent months and the pace of growth
has picked up further in most of the east Asian region. Although the Japanese
economy has shown an extended period of weakness in the past few years, there
have been signs recently of improved conditions, led by a pick-up in exports.
Overall, these developments are consistent with expectations of ongoing recovery
in the international economy during the course of this year.
There has been further predominantly positive news on economic activity in Australia
recently. Consumer spending is showing robust growth, supported by growth
in incomes and by ongoing increases in wealth associated with rising house
prices. These trends have also been associated with a continued rapid expansion
of household debt. The recent strength of household spending has been assisted
by high levels of consumer confidence, likely to have been boosted in recent
months by firmer labour market conditions, with unemployment falling well
below its recent cyclical peak. Business confidence, too, is at a high level,
and businesses are reporting a substantial increase in planned investment
in the coming year. With the international environment likely to continue
improving, conditions overall should remain conducive to growth of the Australian
Inflation in Australia is close to the top of the target range. In the short term,
the inflation rate is expected to decline moderately, principally reflecting
an easing of import price increases. However, notwithstanding some dampening
influence from the recent appreciation of the exchange rate, inflation pressures
appear likely to continue in the longer term, in view of the stronger growth
outlook that has emerged in the past few months.
These recent developments, in sum, have continued the trends evident for some months,
with the global economy recovering and the Australian economy expanding strongly.
Against this background, the Board assessed that the case for moving to a
less expansionary monetary policy setting remained in place. Today's action
is aimed at reducing the risk of potential imbalances, and thereby promoting
sustainable expansion of the economy with low inflation.
Dr G.L. Debelle
Head of Economic Analysis Department
(02) 9551 8801
Mr R. Battellino
Assistant Governor (Financial Markets)
(02) 9551 8200