Statement by Glenn Stevens, Governor: Monetary Policy Decision - May 2013 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2013-05-07

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
7 May 2013
At its meeting today, the Board decided to lower the cash rate by 25 basis points
to 2.75 per cent, effective
8 May 2013.
The global economy is likely to record growth a little below trend this year, before
picking up next year. Among the major regions, the United States continues
on a path of moderate expansion and China's growth is running at a more
sustainable, but still robust, pace. Japan has announced significant new
policy initiatives aimed at strengthening demand and ending deflation. The
euro area remains in recession. Commodity prices have moderated a little
in recent months though they remain high by historical standards.
Financial conditions internationally continue to be very accommodative, with risk
spreads reduced, funding conditions for most financial institutions improved
and borrowing costs for well-rated corporates and sovereigns exceptionally
Growth in Australia was close to trend in 2012 overall, but was a bit below trend
in the second half of the year, and this appears to have continued into 2013.
Employment has continued to grow but more slowly than the labour force, so
that the rate of unemployment has increased a little, though it remains relatively
With the peak in the level of resources sector investment likely to occur this year,
there is scope for other areas of demand to grow more strongly over the next
couple of years. There has been a strengthening in consumption and a modest
firming in dwelling investment, and prospects are for some increase in business
investment outside the resources sector over the next year. Exports of raw
materials are increasing as increased capacity comes on stream. These developments,
some of which have been assisted by the reductions in interest rates that
began 18 months ago, will all be helpful in sustaining growth.
Recent data on prices confirm that inflation is consistent with the target and, if
anything, a little lower than expected. The CPI rose by 2½ per cent
over the past year, and measures of underlying inflation gave a broadly similar
outcome. These results have been pushed up a little by the impact of the
carbon price. Growth of labour costs has moderated slightly over recent quarters
while productivity growth appears to be improving. This should help to lessen
increases in prices for non-tradables. The Bank's forecast remains that
inflation over the next one to two years will be consistent with the target.
Over recent meetings, the Board has noted that interest rates have already been reduced
substantially, with borrowing rates approaching previous lows, and that the
effects of this on the economy are continuing to emerge. Savers have been
changing their portfolios towards assets with higher expected returns, asset
values have risen and some interest-sensitive areas of spending have increased.
The exchange rate, on the other hand, has been little changed at a historically high
level over the past 18 months, which is unusual given the decline in export
prices and interest rates during that time. Moreover, the demand for credit
remains, at this point, relatively subdued.
The Board has previously noted that the inflation outlook would afford scope to ease
further, should that be necessary to support demand. At today's meeting
the Board decided to use some of that scope. It judged that a further decline
in the cash rate was appropriate to encourage sustainable growth in the economy,
consistent with achieving the inflation target.
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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