Statement by Glenn Stevens, Governor: Monetary Policy - February 2009 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2009-02-03

Media Release
Statement by Glenn Stevens, Governor: Monetary Policy
3 February 2009
At its meeting today, the Board decided to reduce the cash rate by a further 100
basis points, to 3.25 per cent, effective 4 February 2009.
There was a significant deterioration in world economic conditions late in 2008.
The effects on household and business confidence of the financial turmoil
following Lehman's collapse, and continuing strains on major financial
institutions, saw a significant downturn in demand around the world. As a
result, the major advanced economies contracted sharply in the December quarter,
as did a number of emerging market economies. The Chinese economy, though
still growing, has slowed markedly. Global inflation, having reached high
rates during the middle of 2008, is now declining.
Measures to stabilise financial systems have contributed to an improvement in the
functioning of credit markets over the past couple of months. This, in conjunction
with expansionary macroeconomic policy measures being taken around the world,
should assist in promoting global recovery over time. But the near-term outlook
for the global economy is the weakest for many years.
Economic conditions in Australia have also been affected, though less than in other
advanced economies. Australia's financial system remains in a strong
condition and large interest rate reductions over recent months have been
passed through in substantial measure to end borrowers. Nonetheless, the
combination of last year's financial turmoil, a severe global downturn
and substantial falls in commodity prices has had a significant dampening
effect on confidence, and therefore on prospects for growth in demand. Inflation
has begun to moderate and, given recent developments, it is likely to continue
to decline.
In these circumstances, the Board judged that a further sizable reduction in the
cash rate was appropriate, to give further support to demand. In making its
decision, the Board took into account the package of measures announced by
the Government earlier today. The combination of expansionary monetary and
fiscal policies now in place will help to cushion the Australian economy
from the contractionary forces coming from abroad.
Dr Malcolm Edey
Assistant Governor (Economic)
Phone: +61 2 9551 8800
Dr Guy Debelle
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
Media Office
Information Department