Statement by Glenn Stevens, Governor: Monetary Policy Decision - August 2012 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2012-08-07

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
7 August 2012
At its meeting today, the Board decided to leave the cash rate unchanged at 3.50
Having picked up in the early months of 2012, growth in the world economy has since
softened. Current assessments are that global GDP will grow at no more than
average pace in 2012. Most commodity prices have declined, which has helped
to reduce inflation and provided scope for some countries to ease macroeconomic
policies. Australia's terms of trade peaked nearly a year ago, though
they remain historically high.
China's growth has moderated to a more sustainable pace, but does not appear
to be slowing further. Conditions in other parts of Asia have recovered from
the effects of last year's natural disasters, though the ongoing trend
is unclear and could be dampened by the effects of slower growth outside
the region. Growth in the United States continues, but at only a modest pace.
The most significant area of weakness continues to be Europe, where economic
activity has been contracting and policymakers confront the very difficult
task of seeking to put both bank and sovereign balance sheets onto a sound
footing, while promoting conditions for improved long-term growth.
Financial markets have responded positively to signs of progress, but Europe will
remain a potential source of adverse shocks for some time. Low appetite for
risk has seen long-term interest rates faced by highly rated sovereigns,
including Australia, decline to exceptionally low levels. Nonetheless, capital
markets remain open to corporations and well-rated banks and Australian banks
have had no difficulty accessing funding, including on an unsecured basis.
Share markets have remained volatile, though in net terms they have generally
risen over the past couple of months.
In Australia, most indicators suggest growth close to trend overall. Labour market
data show moderate employment growth, even with job shedding in some industries,
and the rate of unemployment has thus far remained low.
Inflation remains low, with underlying measures near 2 per cent over the year to
June, and headline CPI inflation lower than that. The effects of the price
on carbon will start to affect these measures over the next couple of quarters.
The Bank's assessment of the outlook for inflation is unchanged: it is
expected to be consistent with the target over the next one to two years.
Maintaining low inflation over the longer term will, however, require growth
in domestic costs to continue their recent moderation as the effects of the
earlier exchange rate appreciation wane.
As a result of the sequence of earlier decisions, monetary policy is easier than
it was for most of 2011, with interest rates for borrowers a little below
their medium-term averages. While it is too soon to see the full impact of
those changes, dwelling prices have firmed a little over the past couple
of months, and business credit has over the past six months recorded its
strongest growth for several years. The exchange rate, however, has remained
high, despite the observed decline in the terms of trade and the weaker global
At today's meeting, the Board judged that, with inflation expected to be consistent
with the target and growth close to trend, but with a more subdued international
outlook than was the case a few months ago, the stance of monetary policy
remained appropriate.
Dr Christopher Kent
Assistant Governor (Economic)
Phone: +61 2 9551 8800
Dr Guy Debelle
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
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