Statement by Glenn Stevens, Governor: Monetary Policy - November 2007 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2007-11-07

Media Release
Statement by Glenn Stevens, Governor: Monetary Policy
7 November 2007
At its meeting yesterday, the Board decided to increase the cash rate by 25 basis
points to 6.75 per cent.
Inflation in Australia has increased. Underlying inflation was 0.9 per cent in the
September quarter and close to 3 per cent over the past year. The annual
pace of CPI inflation was lower, but this reflected two very low quarterly
results nearly a year ago, as well as recent changes to the treatment of
child care costs. By the March quarter of next year, both headline and underlying
measures of inflation are likely to be above 3 per cent.
During 2007, the pace of growth of demand and output has also increased. There are
few signs of that strength diminishing as yet, and reports of high capacity
usage and shortages of suitable labour persist. Growth in labour costs has
been contained so far, and high levels of investment are adding to productive
capacity in some sectors. The rise in the exchange rate will help to contain
pressure on prices. But growth in aggregate demand will, nonetheless, need
to moderate if inflation is to be kept to 2‑3 per cent in the
medium term.
In reaching its decision, the Board continued to look carefully at developments in
international financial markets. Conditions have improved over the past couple
of months, but confidence remains fragile. Funding costs for intermediaries
remain elevated relative to official interest rates, and capital market conditions
are still difficult, in several major countries. This is likely to result
in some moderation in growth in those countries in 2008, and forecasts for
global growth have been revised down accordingly. The world economy is still
expected to grow at an above-average pace, however, led by strong growth
in China and other parts of Asia. High global commodity prices remain an
important source of stimulus to Australian spending and activity.
In Australia, the tightening in credit conditions resulting from the global turmoil
has been less pronounced than elsewhere. Wholesale funding costs have risen
a little compared with official rates, and some borrowers have experienced
an increase in interest costs as a result, but the flow of credit to sound
borrowers does not appear to have been impaired.
Having weighed both the international and domestic information available, the Board
judged that a further increase in the cash rate was needed now in order to
contain inflation in the medium term.
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