Statement by Glenn Stevens, Governor: Monetary Policy - December 2009 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2009-12-01

Media Release
Statement by Glenn Stevens, Governor: Monetary Policy
1 December 2009
At its meeting today, the Board decided to raise the cash rate by 25 basis points
to 3.75 per cent, effective 2 December 2009.
The global economy has resumed growth. With economic policies remaining expansionary,
growth is likely to continue next year, though it will probably be modest
in the major countries, due to the continuing legacy of the financial crisis.
In China and Asia generally, where financial sectors are not impaired, recovery
has been much quicker to date and prospects appear to be for good growth
in 2010. Financial markets have improved considerably during 2009, notwithstanding
periodic setbacks, and capital flows into Asia and other emerging market
regions have been picking up.
In Australia, the downturn was relatively mild, and measures of confidence and business
conditions suggest that the economy is in a gradual recovery. The effects
of the early stages of the fiscal stimulus on consumer demand are fading,
but public infrastructure spending is starting to provide more impetus to
demand. Prospects for ongoing expansion of private demand, including business
investment, have been strengthening. There have been some early signs of
an improvement in labour market conditions. The rate of unemployment is now
likely to peak at a considerably lower level than earlier expected.
Inflation has declined from its peak last year, helped by the fall in commodity prices
at the end of 2008 and a noticeable slowing in private-sector labour costs
during 2009. In underlying terms, inflation should continue to moderate in
the near term, though it will probably not fall as far as thought likely
six months ago. Headline CPI inflation on a year-ended basis has been
unusually low because of temporary factors, and will probably rise somewhat
over the coming year. Both CPI and underlying inflation are expected to be
consistent with the target in 2010. The rise in the exchange rate during
this year will have some impact in containing prices for traded goods and
services in the period ahead, and will dampen growth in the trade-exposed
sector of the economy.
Credit for housing is expanding at a solid pace, and dwelling prices have risen significantly
this year. Business credit has fallen, as companies have reduced leverage
in an environment of tighter lending standards, and as some lenders have
scaled back their balance sheets. The decline in credit has been concentrated
among large firms, which generally have had good access to equity capital
and, more recently, to debt markets. Share markets have recovered significant
ground, which, together with higher dwelling prices, has meant a noticeable
recovery in household wealth.
The Board's assessment of the outlook remains much as in the November
Statement on Monetary Policy
. Growth in 2010 is likely to be close
to trend and inflation close to target.
With the risk of serious economic contraction in Australia having passed, the Board
has moved at recent meetings to lessen gradually the degree of monetary stimulus
that was put in place when the outlook appeared to be much weaker. These
material adjustments to the stance of monetary policy will, in the Board's
view, work to increase the sustainability of growth in economic activity
and keep inflation consistent with the target over the years ahead.
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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