Statement by Glenn Stevens, Governor: Monetary Policy Decision - November 2011 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2011-11-01

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
1 November 2011
At its meeting today, the Board decided to lower the cash rate by 25 basis points
to 4.5 per cent, effective 2 November 2011.
Recent information is consistent with a moderation in the pace of global growth,
though fears of a major downturn have not been borne out so far. The pace
of US economic expansion picked up in the September quarter, but is still
only moderate and leaves considerable spare capacity. China's growth
has slowed, as policymakers there had intended. Output in Asia has now recovered
from the effects of the Japanese earthquake, and domestic demand in the region
is generally expanding. Trade performance, however, is starting to see some
effects of a significant slowing in economic activity in Europe, where the
prospects are for economic weakness to continue. Commodity prices, while
still at high levels, have generally declined over recent months.
Financial markets have recovered somewhat from the turmoil of recent months, helped
by stronger economic data in the United States and by signs that European
governments are making progress in their efforts to deal with the sovereign
debt and banking problems. Equity markets have gained ground and the Australian
dollar has risen significantly as risk aversion has lessened. But it is likely
to be some time yet before concerns about the European situation can definitively
be laid to rest and the effects of the recent turmoil on confidence may result
in a period of precautionary behaviour by firms and households.
Information about the Australian economy suggests moderate growth overall. The terms
of trade have now peaked and will decline somewhat in the near term, but
they remain very high. In response, investment in the resources sector is
picking up very strongly, with much more to come. Some related service sectors
are enjoying better-than-average conditions. In other sectors, cautious behaviour
by households and the high exchange rate have had a noticeable dampening
effect. The unemployment rate has increased a little over recent months,
though it remains close to 5 per cent.
After underlying inflation started to pick up in the first half of the year, recent
information suggests the subdued demand conditions and the high exchange
rate have contained inflation more recently, notwithstanding continuing sizeable
increases in utilities charges. CPI inflation on a year-ended basis remains
above the target, due to the effects of weather events last summer, but is
now starting to decline as production of key crops recovers. Moreover, with
labour market conditions now softer, the likelihood of a significant acceleration
in labour costs outside the resources and related sectors in the near term
has lessened. Accordingly, the Bank's current judgement is that inflation
is likely to be consistent with the 2–3 per cent target in
2012 and 2013, abstracting from the impact of the carbon pricing scheme.
Financial conditions have been easing somewhat recently, with market interest rates
declining a little and competition to lend increasing. But overall conditions
have remained tighter than normal, with borrowing rates still a little higher
than average, credit growth subdued and asset prices lower than earlier in
the year. The exchange rate has been very variable over the past few months,
but on the whole has remained at historically high levels.
Over the past year, the Board has maintained a mildly restrictive stance of monetary
policy, in view of its concerns about inflation. With overall growth moderate,
inflation now likely to be close to target and confidence subdued outside
the resources sector, the Board concluded that a more neutral stance of monetary
policy would now be consistent with achieving sustainable growth and 2–3 per
cent inflation over time.
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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