Statement by Glenn Stevens, Governor: Monetary Policy Decision - October 2012 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2012-10-02

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
2 October 2012
At its meeting today, the Board decided to lower the cash rate by 25 basis points
3.25 per cent
, effective 3 October 2012.
The outlook for growth in the world economy has softened over recent months, with
estimates for global GDP being edged down, and risks to the outlook still
seen to be on the downside. Economic activity in Europe is contracting, while
growth in the United States remains modest. Growth in China has also slowed,
and uncertainty about near-term prospects is greater than it was some months
ago. Around Asia generally, growth is being dampened by the more moderate
Chinese expansion and the weakness in Europe.
Key commodity prices for Australia remain significantly lower than earlier in the
year, even though some have regained some ground in recent weeks. The terms
of trade have declined by over 10 per cent since the peak last year and will
probably decline further, though they are likely to remain historically high.
Financial markets have responded positively over the past few months to signs of
progress in addressing Europe's financial problems, but expectations
for further progress remain high. Low appetite for risk has seen long-term
interest rates faced by highly rated sovereigns, including Australia, remain
at 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 generally
risen over recent months.
In Australia, most indicators available for this meeting suggest that growth has
been running close to trend, led by very large increases in capital spending
in the resources sector. Consumption growth was quite firm in the first half
of 2012, though some of that strength was temporary. Investment in dwellings
has remained subdued, though there have been some tentative signs of improvement,
while non-residential building investment has also remained weak. Looking
ahead, the peak in resource investment is likely to occur next year, and
may be at a lower level than earlier expected. As this peak approaches it
will be important that the forecast strengthening in some other components
of demand starts to occur.
Labour market data have shown moderate employment growth and the rate of unemployment
has thus far remained low. The Bank's assessment, though, is that the
labour market has generally softened somewhat in recent months.
Inflation has been low, with underlying measures near 2 per cent over the year to
June, and headline CPI inflation lower than that. The introduction of the
carbon price is affecting consumer prices in the current quarter, and this
will continue over the next couple of quarters. Moderate labour market conditions
should work to contain pressure on labour costs in sectors other than those
directly affected by the current strength in resources. This and some continuing
improvement in productivity performance will be needed to keep inflation
low as the effects of the earlier exchange rate appreciation wane. The Bank's
assessment remains, at this point, that inflation will be consistent with
the target over the next one to two years.
Interest rates for borrowers have for some months been a little below their medium-term
averages. There are tentative signs of this starting to have some of the
expected effects, though the impact of monetary policy changes takes some
time to work through the economy. However, credit growth has softened of
late and the exchange rate has remained higher than might have been expected,
given the observed decline in export prices and the weaker global outlook.
At today's meeting, the Board judged that, on the back of international developments,
the growth outlook for next year looked a little weaker, while inflation
was expected to be consistent with the target. The Board therefore decided
that it was appropriate for the stance of monetary policy to be a little
more accommodative.
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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