Statement by Glenn Stevens, Governor: Monetary Policy Decision - February 2015 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2015-02-03

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
3 February 2015
At its meeting today, the Board decided to lower the cash rate by 25 basis points
2.25 per cent
, effective
4 February 2015.
Growth in the global economy continued at a moderate pace in 2014. China's growth
was in line with policymakers' objectives. The US economy continued to
strengthen, but the euro area and Japanese economies were both weaker than
expected. Forecasts for global growth in 2015 envisage continued moderate
Commodity prices have continued to decline, in some cases sharply. The price of oil
in particular has fallen significantly over the past few months. These trends
appear to reflect a combination of lower growth in demand and, more importantly,
significant increases in supply. The much lower levels of energy prices will
act to strengthen global output and temporarily to lower CPI inflation rates.
Financial conditions are very accommodative globally, with long-term borrowing rates
for several major sovereigns reaching new all-time lows over recent months.
Some risk spreads have widened a little but overall financing costs for creditworthy
borrowers remain remarkably low.
In Australia the available information suggests that growth is continuing at a below-trend
pace, with domestic demand growth overall quite weak. As a result, the unemployment
rate has gradually moved higher over the past year. The fall in energy prices
can be expected to offer significant support to consumer spending, but at
the same time the decline in the terms of trade is reducing income growth.
Overall, the Bank's assessment is that output growth will probably remain
a little below trend for somewhat longer, and the rate of unemployment peak
a little higher, than earlier expected. The economy is likely to be operating
with a degree of spare capacity for some time yet.
The CPI recorded the lowest increase for several years in 2014. This was affected
by the sharp decline in oil prices at the end of the year and the removal
of the price on carbon. Measures of underlying inflation also declined a
little, to around 2¼ per cent over the year. With growth in labour
costs subdued, it appears likely that inflation will remain consistent with
the target over the next one to two years, even with a lower exchange rate.
Credit growth picked up to moderate rates in 2014, with stronger growth in lending
to investors in housing assets. Dwelling prices have continued to rise strongly
in Sydney, though trends have been more varied in a number of other cities
over recent months. The Bank is working with other regulators to assess and
contain economic risks that may arise from the housing market.
The Australian dollar has declined noticeably against a rising US dollar over recent
months, though less so against a basket of currencies. It remains above most
estimates of its fundamental value, particularly given the significant declines
in key commodity prices. A lower exchange rate is likely to be needed to
achieve balanced growth in the economy.
For the past year and a half, the cash rate has been stable, as the Board has taken
time to assess the effects of the substantial easing in policy that had already
been put in place and monitored developments in Australia and abroad. At
today's meeting, taking into account the flow of recent information and
updated forecasts, the Board judged that, on balance, a further reduction
in the cash rate was appropriate. This action is expected to add some further
support to demand, so as to foster sustainable growth and inflation outcomes
consistent with the target.
Media Office
Information Department