Statement by Glenn Stevens, Governor: Monetary Policy - February 2008 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2008-02-05

Media Release
Statement by Glenn Stevens, Governor: Monetary Policy
5 February 2008
At its meeting today, the Board decided to increase the cash rate by 25 basis points
to 7.0 per cent.
Recent information points to significant inflation pressures. CPI inflation on a
year-ended basis picked up to 3 per cent in the December quarter,
with underlying measures around 3½ per cent. This was a little
higher than was expected a few months ago. Indicators of demand remained
strong through the second half of 2007, and reports of high capacity usage
and shortages of suitable labour persist. In the short term, inflation is
likely to remain relatively high and will probably rise further in year-ended
terms, though the Bank expects it to moderate somewhat next year.
The Board took careful note of recent events abroad and developments in financial
markets. The world economy is slowing and it now appears likely that global
growth will be below trend in 2008. Recent trends in world commodity markets
suggest, however, that Australia's terms of trade are likely to rise
The pressures in short-term money markets seen late last year have eased in recent
weeks, but sentiment in international capital and equity markets remains
fragile. In Australia, financial intermediaries have passed on higher costs
to their customers over the past couple of months. There has also been some
tightening of lending standards to risky borrowers, a process which may yet
have further to go.
These developments, together with the effects of earlier changes to monetary policy,
can be expected to exert a moderating influence on private demand in Australia
over the period ahead. But given the extent of pressure on capacity and the
build up in inflation, a significant slowing in demand from its recent pace
is likely to be necessary to reduce inflation over time.
Having weighed both the international and domestic information available, the Board
concluded that a tighter monetary policy setting was needed now. In future
meetings, the Board will continue to evaluate whether the stance of policy
will be sufficiently restrictive to return inflation to the 2–3 per
cent target.
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