Statement by Glenn Stevens, Governor: Monetary Policy Decision - May 2011 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2011-05-03

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
3 May 2011
At its meeting today, the Board decided to leave the cash rate unchanged at 4.75 per
The global economy is continuing its expansion, led by very strong growth in the
Asian region. The recent disaster in Japan is having a major impact on Japanese
production, and some effects on production of manufactured products further
afield. Commodity prices, including oil prices, have generally continued
to rise over recent months, pushing up measures of consumer price inflation
in many countries. A number of countries have been moving to tighten their
monetary policy settings. Overall, though, financial conditions for the global
economy remain accommodative. Uncertainty remains over the prospects for
resolution of the banking and sovereign debt issues in Europe.
Australia's terms of trade are reaching higher levels than assumed a few months
ago, and national income is growing strongly. Private investment is picking
up, mainly in the resources sector, in response to high levels of commodity
prices. In the household sector thus far, in contrast, there continues to
be caution in spending and borrowing, and a higher rate of saving out of
current income.
The natural disasters over the summer have reduced output in some key sectors and
the resumption of coal production in flooded mines is taking longer than
initially expected. It is likely this caused a decline in real GDP in the
March quarter. Production levels should, however, recover over the months
ahead, and there will be a mild boost to demand from the rebuilding efforts
as they get under way. Over the medium term, overall growth is likely to
be at trend or higher.
Growth in employment has moderated over recent months and the unemployment rate has
been little changed, near 5 per cent. Most leading indicators suggest
further growth in employment, though most likely at a slower pace than in
2010. Reports of skills shortages remain confined, at this point, to the
resources and related sectors. After the significant decline in 2009, growth
in wages has returned to rates seen prior to the downturn.
Overall credit growth remains quite modest. Signs have continued to emerge of some
greater willingness to lend, and business credit has resumed growth after
a period of contraction. Growth in credit to households, on the other hand,
has softened recently, as have housing prices in several cities. The exchange
rate has risen further and, in real effective terms, is at its highest level
in several decades. This, if sustained, could be expected to exert additional
restraint on the traded sector.
Recent data on inflation show the effects of production losses due to the floods
and Cyclone Yasi. The affected prices should fall back later in the
year, though substantial rises in utilities prices are still occurring. The
Bank expects that, as the temporary price shocks dissipate over the coming
quarters, CPI inflation will be close to target over the year ahead.
Looking through these short-term movements, however, the recent information suggests
that the marked decline in underlying inflation from the peak in 2008 has
now run its course. While the rising exchange rate will be helping to hold
down prices for some consumer products over the coming few quarters, over
the longer term inflation can be expected to increase somewhat if economic
conditions evolve broadly as expected.
At today's meeting, the Board judged that the current mildly restrictive stance
of monetary policy remained appropriate. In future meetings, the Board will
continue to assess carefully the evolving outlook for growth and inflation.
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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