Statement by Glenn Stevens, Governor: Monetary Policy - November 2008 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2008-11-04

Media Release
Statement by Glenn Stevens, Governor: Monetary Policy
4 November 2008
At its meeting today, the Board decided to reduce the cash rate by 75 basis
points to 5.25 per cent, effective 5 November 2008.
World financial markets have remained turbulent over the past month. Global equity
prices have been volatile and fell further in net terms, and there have been
significant exchange rate movements, including a sharp depreciation of the
Australian dollar.  A number of governments have announced measures
to strengthen their financial systems, which should help to stabilise conditions
over time.
International economic data have continued to point to significant weakness in the
major industrial economies, and there have been further signs that China
and other parts of the developing world are slowing as well. These conditions
have contributed to further falls in world commodity prices.
In Australia, the overall path of economic activity appears until recently to have
been close to what the Board had expected, with a needed moderation in demand
occurring after a period of earlier strength. Recent reductions in borrowing
rates, the depreciation of the exchange rate and the fiscal stimulus announced
in October will work to assist growth in the period ahead, but deteriorating
international conditions and falling commodity prices will have a dampening
influence. On balance, it appears likely that spending and activity will
be weaker than earlier expected.
Consumer price inflation in Australia remained high in the September quarter. As
expected, CPI inflation in year‑ended terms picked up to 5 per
cent, while underlying measures were just over 4½ per cent.  Nonetheless,
capacity pressures are now easing and, given the outlook for more moderate
growth in demand and activity, it is reasonable to expect that inflation
in Australia will soon start to fall. Global disinflationary forces will
assist in this regard, though the depreciation of the exchange rate means
that the decline of inflation to the target could take longer than would
otherwise be the case.
Weighing up these international and domestic developments, the Board judged that
a further significant reduction in the cash rate was warranted. The Board
will continue to monitor developments and make adjustments as needed to promote
sustainable growth consistent with achieving the 2–3 per cent
inflation target over time.
Dr Malcolm Edey
Assistant Governor (Economic)
Phone: +61 2 9551 8800
Dr Guy Debelle
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
Manager, Media Office
Information Department