Statement by Glenn Stevens, Governor: Monetary Policy - September 2008 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2008-09-02

Media Release
Statement by Glenn Stevens, Governor: Monetary Policy
2 September 2008
At its meeting today the Board decided to lower the cash rate by 25 basis points
to 7.0 per cent, effective 3 September.
Inflation in Australia has been high over the past year in an environment of limited
spare capacity and earlier strong growth in demand. In these circumstances,
the Board has been seeking to restrain demand in order to reduce inflation
over time.
As a result of increases in the cash rate last year and early this year, additional
rises in market interest rates and tougher credit standards, financial conditions
have been quite tight. Some further tightening has occurred over the past
couple of months. Conditions in international financial markets remain difficult,
with heightened concerns over credit persisting.
The evidence is that the tight financial conditions, in conjunction with other factors
including higher fuel costs and lower asset values, have exerted the needed
restraint on demand. Indicators of household spending have recorded subdued
outcomes over recent months, and credit expansion to both households and
businesses has slowed. Surveys suggest a softening in business activity and
growth in production has slowed.  Indicators of capacity utilisation,
while still high, are declining and there have also been some signs of an
easing in labour market conditions.
The rise in Australia's terms of trade that has occurred is working in the
opposite direction, adding substantially to national income and ability to
spend. Fixed investment spending by businesses continues to be very strong.
At the same time, high prices of oil and a range of other commodities have
added to global inflationary risks. They are also dampening growth in a number
of countries.
Given the opposing forces at work, considerable uncertainty has surrounded the outlook
for demand and inflation. On balance, however, it is looking more likely
that household demand will remain subdued and overall economic growth slow
over the period ahead. Inflation is likely to remain relatively high in the
short term, with the CPI affected by the high global oil prices in mid year
and other increases in raw materials prices. But looking further ahead, the
outlook for demand suggests that inflation in both CPI and underlying terms
is likely to decline over time, provided wages growth remains contained.
The Bank's forecast remains that inflation will fall below 3 per cent
during 2010.
Weighing up the available domestic and international information, the Board judged
that there was now scope for monetary policy to become less restrictive.
The Board will continue to assess prospects for demand and inflation over
the period ahead, and set monetary policy as needed to bring inflation back
to the 2–3 per cent target over time.
Dr Anthony Richards
Head of Economic Analysis Department
Phone: +61 2 9551 8801
Dr Guy Debelle
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
Media Office
Information Department