Statement by Glenn Stevens, Governor: Monetary Policy Decision - December 2012 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2012-12-04

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
4 December 2012
At its meeting today, the Board decided to reduce the cash rate by 25 basis points
3.0 per cent
, effective 5 December 2012.
Global growth is forecast to be a little below average for a time. Risks to the outlook
are still seen to be on the downside, largely as a result of the situation
in Europe, though the uncertainty over the course of US fiscal policy is
also weighing on sentiment at present. Recent data suggest that the US economy
is recording moderate growth and that growth in China has stabilised. Around
Asia generally, growth has been dampened by the more moderate Chinese expansion
and the weakness in Europe.
Key commodity prices for Australia remain significantly lower than earlier in the
year, though trends have been more mixed over the past few months. The terms
of trade have declined by about 15 per cent since the peak, to a level that
is still historically high.
Sentiment in financial markets remains better than it was in mid year, in response
to signs of progress in addressing Europe's financial problems, though
Europe is likely to remain a source of instability for some time. Long-term
interest rates faced by highly rated sovereigns, including Australia, remain
at exceptionally low levels. Capital markets remain open to corporations
and well-rated banks, and Australian banks have had no difficulty accessing
funding, including on an unsecured basis. Borrowing conditions for large
corporations are similarly attractive and share prices have risen since mid
In Australia, most indicators available for this meeting suggest that growth has
been running close to trend over the past year, led by very large increases
in capital spending in the resources sector, while some other sectors have
experienced weaker conditions. Looking ahead, recent data confirm that the
peak in resource investment is approaching. As it does, there will be more
scope for some other areas of demand to strengthen.
Private consumption spending is expected to grow, but a return to the very strong
growth of some years ago is unlikely. Available information suggests that
the near-term outlook for non-residential building investment, and investment
generally outside the resources sector, remains relatively subdued. Public
spending is forecast to be constrained. On the other hand, there are indications
of a prospective improvement in dwelling investment, with dwelling prices
moving a little higher, rental yields increasing and building approvals having
turned up.
Inflation is consistent with the medium-term target, with underlying measures at
around 2½ per cent. The introduction of the carbon price affected
consumer prices in the September quarter, and there could be some further
small effects over the next couple of quarters. Partly as a result of that,
headline CPI inflation will rise above 3 per cent briefly. Looking further
ahead, with the labour market softening somewhat and unemployment edging
higher, conditions are working to contain pressure on labour costs. A continuation
of moderate wage outcomes and improved productivity performance will be needed
to keep inflation low, since the effects on prices of the earlier exchange
rate appreciation are now waning. The Bank's assessment remains that
inflation will be consistent with the target over the next one to two years.
Over the past year, monetary policy has become more accommodative. There are signs
of easier conditions starting to have some of the expected effects, though
the exchange rate remains higher than might have been expected, given the
observed decline in export prices and the weaker global outlook. While the
full effects of earlier measures are yet to be observed, the Board judged
at today's meeting that a further easing in the stance of monetary policy
was appropriate now. This will help to foster sustainable growth in demand
and inflation outcomes consistent with the target over time.
Dr Christopher Kent
Assistant Governor (Economic)
Phone: +61 2 9551 8800
Dr Guy Debelle
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
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