Statement by Glenn Stevens, Governor: Monetary Policy Decision - June 2012 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2012-06-05

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
5 June 2012
At its meeting today, the Board decided to lower the cash rate by 25 basis points
to 3.50 per cent, effective 6 June 2012.
Growth in the world economy picked up in the early months of 2012, having slowed
in the second half of 2011. But more recent indicators suggest further weakening
in Europe and some further moderation in growth in China. Conditions in other
parts of Asia have largely recovered from the effects of last year's
natural disasters, but the ongoing trend is unclear and could be dampened
by slower Chinese growth. The United States continues to grow at a moderate
pace. Commodity prices have declined lately, though they are mostly still
high. Australia's terms of trade similarly peaked about six months ago,
though they remain historically high.
Financial market sentiment has deteriorated over the past month. The Board has noted
previously that Europe would remain a potential source of adverse shocks.
Europe's economic and financial prospects have again been clouded by
weakening growth, heightened political uncertainty and concerns about fiscal
sustainability and the strength of some banks. Capital markets remain open
to corporations and well-rated banks, but spreads have increased. Long-term
interest rates faced by highly rated sovereigns, including Australia, have
fallen to exceptionally low levels. Share markets have declined.
In Australia, available indicators suggest modest growth continued in the first part
of 2012, with significant variation across sectors. Overall labour market
conditions firmed a little, notwithstanding job shedding in some industries,
and the rate of unemployment remains low. Nonetheless, both households and
businesses continue to exhibit a degree of precautionary behaviour, which
may continue in the near term.
There have been no new data for inflation since the previous meeting. Over the coming
one to two years, and abstracting from the effects of the carbon price, inflation
is expected to be in the 2–3 per cent range. In the near
term, it is likely to be in the lower part of that range, though maintaining
low inflation over the longer term will require growth in domestic costs
to slow as the effects of the earlier high exchange rate wane.
As a result of earlier changes to monetary policy, interest rates for borrowers have
declined to be a little below their medium-term averages. Business credit
has increased more strongly in recent months, though credit growth remains
modest overall. Housing prices had shown some signs of stabilising around
the turn of the year, but have recently declined again. Generally, the housing
market remains subdued. The exchange rate has declined over recent weeks,
reflecting lower commodity prices, heightened risk aversion and expectations
of lower interest rates.
At today's meeting, the Board judged that, with modest domestic growth and a
weaker and more uncertain international environment, the outlook for inflation
afforded scope for a more accommodative stance of monetary policy.
Dr Christopher Kent
Assistant Governor (Economic)
Phone: +61 2 9551 8800
Dr Guy Debelle
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
Media Office
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