Statement by Glenn Stevens, Governor: Monetary Policy - July 2008 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2008-07-01

Media Release
Statement by Glenn Stevens, Governor: Monetary Policy
1 July 2008
At its meeting today, the Board decided to leave the cash rate unchanged at 7.25 per
Inflation in Australia has been high over the past year in an environment of limited
spare capacity and earlier strong growth in demand. In these circumstances,
the Board has been seeking to restrain demand in order to reduce inflation
over time.
As a result of earlier decisions by the Board, additional rises in market interest
rates and tougher credit standards for some borrowers, there has been a substantial
tightening in financial conditions since the middle of last year. Conditions
in international financial markets remain difficult, with credit concerns
resurfacing in the past month.
The evidence is that the tightening in financial conditions, in conjunction with
other factors including rising fuel costs, is working to restrain demand.
Indicators of household spending have recorded subdued outcomes over recent
months, and credit expansion to both households and businesses has weakened
significantly. There have also been some tentative signs of an easing in
labour market conditions.
The rise in Australia's terms of trade that is currently occurring will work
in the opposite direction. It will add substantially to national income and
ability to spend, even with the slowing in global growth to below-trend pace
that the Bank is assuming. At the same time, rising prices of oil and a range
of other commodities are adding to global inflationary risks.
Given the opposing forces at work, considerable uncertainty remains about the outlook
for demand and inflation. On balance, while the inflation outlook remains
concerning, the Board's assessment continues to be that demand growth
will be moderate this year. The most recent flow of information has given
additional support to that assessment. Inflation is likely to remain relatively
high in the short term, and the CPI will be further boosted in coming quarters
by the recent rises in global oil prices. Looking further ahead, inflation
in both CPI and underlying terms should decline over time, provided demand
continues to evolve as expected.
Weighing up the available domestic and international information, the Board's
judgement is that the current stance of monetary policy remains appropriate.
The Board will continue to evaluate prospects for economic activity and inflation
in the light of new information.
Dr Malcolm Edey
Assistant Governor (Economic)
Phone: +61 2 9551 8800
Dr Guy Debelle
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
Manager, Media Office
Information Department