Statement by Glenn Stevens, Governor: Monetary Policy Decision - August 2011 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2011-08-02

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
2 August 2011
At its meeting today, the Board decided to leave the cash rate unchanged at 4.75 per
The global economy is continuing its expansion, but the pace of growth slowed in
the June quarter. The supply-chain disruptions from the Japanese earthquake
and the dampening effects of high commodity prices on income and spending
in major countries both contributed to the slowing. It is still not clear
how persistent this slower growth will be. The supply-chain disruptions are
now gradually abating and commodity prices have softened of late, though
they generally remain high. In China most indications suggest only a mild
slowdown so far.
The central scenario for the world economy over the next couple of years envisaged
by most forecasters remains one of growth below the pace of 2010, but at
or above long-term averages. Downside risks have increased, however, as concerns
have grown over the outlook for the public finances of both Europe and the
United States.
Australia's terms of trade are now at very high levels and national income has
been growing strongly. Investment in the resources sector is picking up very
strongly and some related service sectors are enjoying better than average
conditions. But in other sectors, cautious behaviour by households and the
high level of the exchange rate are having a noticeable dampening effect.
The impetus from earlier Australian Government spending programs is now also
abating, as had been intended.
The resumption of coal production continues, but a full recovery of flood-affected
production now looks unlikely before early next year. Precautionary behaviour
by households also looks likely to keep some areas of demand weaker in the
near term than earlier expected. Overall, growth in real GDP through 2011
is now likely to be at about trend. Over the medium term, overall growth
is still likely to be at trend or higher, unless the world economy deteriorates
noticeably.
Growth in employment has moderated and the unemployment rate has been little changed,
near 5 per cent, for some time now. Reports of skills shortages remain
confined, at this point, to the resources and related sectors. After the
significant decline in 2009, growth in wages has returned to rates seen prior
to the downturn, though productivity growth remains weak.
Year-ended CPI inflation has been high, affected by the extreme weather events earlier
in the year. As these effects reverse over the next couple of quarters, CPI
inflation should decline. But measures that give a better indication of the
trend in inflation have begun to rise over the past six months, after declining
for the previous two years. While they have, to date, remained consistent
with the 2–3 per cent target on a year-ended basis, the Board
remains concerned about the medium-term outlook for inflation.
It is appropriate under such circumstances for monetary policy to exert a degree
of restraint. Most financial indicators suggest that it has been doing so,
as a result of the Board's decisions last year. Credit growth has declined
over recent months and is very subdued by historical standards, even with
evidence of greater willingness to lend. Most asset prices, including housing
prices, have also softened over recent months. The exchange rate is high.
Each of these variables is affected by other factors as well, but together
they point to financial conditions being tighter than normal.
At today's meeting, the Board considered whether the recent information warranted
further policy tightening. On balance, the Board judged that it was prudent
to maintain the current setting of monetary policy, particularly in view
of the acute sense of uncertainty in global financial markets over recent
weeks. In future meetings, the Board will continue to assess carefully the
evolving outlook for growth and inflation.
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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