Statement by Glenn Stevens, Governor: Monetary Policy Decision - July 2014 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2014-07-01

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
1 July 2014
At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per
Growth in the global economy is continuing at a moderate pace, helped by firmer conditions
in the advanced countries. China's growth slowed a little earlier in
the year but remains generally in line with policymakers' objectives.
Commodity prices in historical terms remain high, but some of those important
to Australia have declined.
Financial conditions overall remain very accommodative. Long-term interest rates
and risk spreads remain low. Emerging market economies are once again receiving
capital inflows. Volatility in many financial prices is currently unusually
low. Markets appear to be attaching a very low probability to any rise in
global interest rates over the period ahead.
In Australia, recent data indicate somewhat firmer growth around the turn of the
year, but this resulted mainly from very strong increases in resource exports
as new capacity came on stream; smaller increases in such exports are likely
in coming quarters. Moderate growth has been occurring in consumer demand.
A strong expansion in housing construction is now under way. At the same
time, resources sector investment spending is starting to decline significantly.
Signs of improvement in investment intentions in some other sectors are emerging,
but these plans remain tentative as firms wait for more evidence of improved
conditions before committing to significant expansion. Public spending is
scheduled to be subdued. Overall, the Bank still expects growth to be a little
below trend over the year ahead.
There has been some improvement in indicators for the labour market in recent months,
but it will probably be some time yet before unemployment declines consistently.
Growth in wages has declined noticeably. If these and other domestic costs
remain contained, inflation should remain consistent with the target over
the next one to two years, even with lower levels of the exchange rate.
Monetary policy remains accommodative. Interest rates are very low and for some borrowers
have edged lower over recent months. Savers continue to look for higher returns
in response to low rates on safe instruments. Credit growth has picked up
a little, including most recently to businesses. Dwelling prices have increased
significantly over the past year, though there have been some signs of a
moderation in the pace of increase recently. The exchange rate remains high
by historical standards, particularly given the declines in key commodity
prices, and hence is offering less assistance than it might in achieving
balanced growth in the economy.
Looking ahead, continued accommodative monetary policy should provide support to
demand and help growth to strengthen over time. Inflation is expected to
be consistent with the 2–3 per cent target over the next two years.
In the Board's judgement, monetary policy is appropriately configured to foster
sustainable growth in demand and inflation outcomes consistent with the target.
On present indications, the most prudent course is likely to be a period
of stability in interest rates.
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