Statement by Glenn Stevens, Governor: Monetary Policy - June 2008 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2008-06-03

Media Release
Statement by Glenn Stevens, Governor: Monetary Policy
3 June 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, though gradually improving, also remain
difficult.
The evidence is that this is helping to produce a moderation in demand. While labour
market conditions to date have remained strong, indicators of household spending
have recorded subdued outcomes over recent months, and credit expansion to
both households and businesses has weakened significantly.
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.
Given the opposing forces at work, considerable uncertainty remains about the outlook
for demand and inflation. On balance, the Board's current assessment
is that demand growth will be moderate this year. In the short term, inflation
is likely to remain relatively high, but it should decline over time provided
demand evolves as expected. Should demand not slow as expected, or should
expectations of high ongoing inflation begin to affect wage and price setting,
that outlook would need to be reviewed.
Weighing up the available domestic and international information, the Board's
judgement is that the current stance of monetary policy remains appropriate
for the time being. 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