Statement by Glenn Stevens, Governor: Monetary Policy - August 2007 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2007-08-08

Media Release
Statement by Glenn Stevens, Governor: Monetary Policy
8 August 2007
At its meeting yesterday, the Board decided to increase the cash rate by 25 basis
points to 6.5 per cent.
Domestic economic data in recent months have signalled a pick-up in the pace of growth
in demand and activity. Capacity utilisation is high after a lengthy period
of expansion, and unemployment over recent months has continued to decline.
Business and household confidence are strong. The demand for finance has
strengthened, even apart from the temporary surge in June, particularly in
the business sector. These conditions have been accompanied recently by higher-than-expected
underlying inflation.
In assessing the outlook, the Board gave careful consideration to recent developments
in the global economy and financial markets. Credit markets in the US have
experienced some turbulence in recent weeks, which may pose downside risks
to the US economy. While this will need to be kept under review, developments
to date do not appear to have changed significantly the broader global outlook.
Even with the US slowing down, forecasts of global growth have recently been
revised upward. High world commodity prices remain an important source of
stimulus to Australia's national income and spending.
For some months, the Board has recognised that stronger economic conditions were
likely to put upward pressure on inflation, notwithstanding some dampening
influence from the higher exchange rate. As a result, the Board has been
of the view that further monetary policy tightening could be required. The
main factors that had allowed time for further consideration were that, prior
to this month, the two most recent inflation results had been unexpectedly
subdued, and wages growth had remained moderate. However, the high CPI outcome
for the June quarter indicated a less favourable near-term outlook, with
the implication that any further increases in inflation would take place
from a higher starting point than previously envisaged.
Based on these considerations, the Board judged that a somewhat more restrictive
monetary policy setting was required in order to keep inflation consistent
with the target 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