Statement by Glenn Stevens, Governor: Monetary Policy Decision - September 2012 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2012-09-04

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
4 September 2012
At its meeting today, the Board decided to leave the cash rate unchanged at 3.50
Having picked up in the early months of 2012, growth in the world economy has since
softened. Current assessments are that global GDP will grow at no more than
average pace in 2012, with risks to the outlook still on the downside. Economic
activity in Europe is contracting, while growth in the United States is only
modest. Growth in China remained reasonably robust in the first half of this
year, albeit well below the exceptional pace seen in recent years. Some recent
indicators have been weaker, which has added to uncertainty about near-term
growth. Around Asia generally, growth is being dampened by the more moderate
Chinese expansion and the weakness in Europe.
Markets for key natural resources are adjusting accordingly. Some commodity prices
of importance to Australia have fallen sharply in recent weeks. The terms
of trade peaked a year ago and have declined significantly since then, though
they remain historically high.
Financial markets have responded positively over the past couple of months to signs
of progress in addressing Europe's financial problems, but expectations
for further progress are 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
the past couple of months, on very light volumes.
In Australia, most indicators available for this meeting suggest growth has been
running close to trend, led by very large increases in capital spending in
the resources sector. Consumption growth was also quite firm in the first
half of the year, though some of that strength was temporary. Labour market
data have shown moderate employment growth, even with job shedding in some
industries, and the rate of unemployment has thus far remained low.
Inflation remains 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 starting to affect consumer prices in the current quarter,
and this will continue over the next couple of quarters. The Bank's assessment
is that inflation will be consistent with the target over the next one to
two years. Maintaining low inflation will, however, require growth in domestic
costs to remain contained as the effects of the earlier exchange rate appreciation
As a result of the sequence of earlier decisions, interest rates for borrowers are
a little below their medium-term averages. The impact of those changes is
still working its way through the economy, but dwelling prices have firmed
a little and business credit has picked up this year. The exchange rate has
declined over the past month or two, though it 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, with inflation expected to be consistent
with the target and growth close to trend, but with a more subdued international
outlook than was the case a few months ago, the stance of monetary policy
remained appropriate.
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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