Statement by the Governor, Mr Ian Macfarlane: Monetary Policy - December 2003 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2003-12-03

Media Release
Statement by the Governor, Mr Ian Macfarlane: Monetary Policy
3 December 2003
Following a decision taken by the Board at its meeting yesterday, the Bank will be
operating in the money market this morning to increase the cash rate by 25
basis points, to 5.25 per cent.
In reaching this decision, the Board took into account the following considerations:
Economic conditions around the world have continued to improve. In the United States
the pace of growth has picked up markedly since mid year, and there is increasing
evidence that the US recovery is becoming more broadly based. Stronger conditions
have been evident in Japan, China, and other parts of east Asia, and also,
to a lesser extent, in Europe. As a result of these trends the international
climate, though still not without risks, is more favourable than has been
the case for some time.
In Australia, the indications are that the economy has strengthened considerably
since mid year. The pace of consumer spending has accelerated sharply, business
confidence is high, and the labour market has firmed over recent months.
While the exchange rate has appreciated, the stronger international climate,
rising commodity prices and more favourable conditions in the farm sector
indicate improving export prospects. Hence, notwithstanding some early signs
of a change in sentiment in the housing market, the overall prospects are
for strong growth of the Australian economy.
Australia's inflation rate at present is close to the target mid-point. While domestically
sourced inflation pressures have risen, the overall inflation rate is being
held down by the effects of the higher exchange rate on prices in the tradeables
sector. In the short term, these exchange rate effects are likely to reduce
the inflation rate further. Once these effects start to fade, however, CPI
inflation is expected to be on a rising trajectory given the strength of
domestic demand, firming labour market conditions and continuing strong
price pressures in the non-tradeables sector of the economy.
Monetary policy is continuing to have a stimulatory effect on the economy through
domestic credit expansion. The growth of credit remains rapid and indeed
has picked up further in the past few months. The prevailing level of the
cash rate after the November increase was still below neutral, and interest
rates of financial intermediaries remained low by the standards of recent
In these circumstances the Board took the view that a further increase in the cash
rate was warranted in order to reduce the degree of stimulus to the economy
from monetary policy.
Dr M.L. Edey
Assistant Governor (Economic)
Phone: +61 2 9551 8800
Mr R. Battellino
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
Manager, Media Office
Information Department
+61 2 9551 8111
Fax: +61 2 9221 5528