Statement by Glenn Stevens, Governor: Monetary Policy Decision - June 2011 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2011-06-07

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
7 June 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, though the recent disaster in Japan is having a major impact
on Japanese production, and significant effects on production of some manufactured
products further afield. Commodity prices have generally softened a little
of late, but they remain at very high levels, which is weighing on income
and demand in major countries and also pushing up measures of consumer price
inflation. In response, a number of the countries with stronger expansions
have been moving to tighten their monetary policy settings over recent months.
Overall, though, financial conditions for the global economy remain accommodative.
Uncertainty over the prospects for resolution of the banking and sovereign
debt problems in Europe has increased over the past couple of months, which
has been adding to financial market volatility.
Australia's terms of trade are reaching very high levels and national income
has been growing strongly. Private investment is picking up, led by very
large capital spending programs in the resources sector, in response to high
levels of commodity prices. Outside the resources sector, investment intentions
have been revised lower recently. In the household sector thus far, there
continues to be a degree of caution in spending and borrowing and a higher
rate of saving out of current income. The impetus from earlier Australian
Government spending programs is now also abating, as had been intended.
The floods and cyclones over the summer have reduced output in some key sectors.
As a result there was a sharp fall in real GDP in the March quarter, despite
a solid increase in aggregate demand. The resumption of coal production in
flooded mines is taking longer than initially expected, but production levels
are now increasing again and there will be a mild boost to demand from the
broader 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
that this slower pace of employment growth is likely to continue in the near
term. 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 expanded this year after
a period of contraction. Growth in credit to households, on the other hand,
has softened, as have housing prices. The exchange rate remains, in real
effective terms, close to its highest level in several decades. If sustained,
this could be expected to exert continued restraint on the traded sector.
CPI inflation has risen over the past year, reflecting the effects of extreme weather
and rises in utilities prices, with lower prices for traded goods providing
some offset. The weather-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 next 12 months.
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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