Statement by Glenn Stevens, Governor: Monetary Policy Decision - February 2011 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2011-02-01

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
1 February 2011
At its meeting today, the Board decided to leave the cash rate unchanged at 4.75 per cent.
Global output grew strongly in 2010, notwithstanding the relatively subdued performance
of several of the major economies. The Chinese and Indian economies in particular
have recorded very strong expansions, and price pressures, particularly for
food and raw materials, have picked up. Concerns about sovereign creditworthiness
in Europe have remained prominent and uncertainty from this source seems
likely to persist for some time. Overall, however, the global economy continues
to look strong going into 2011. Commodity prices have remained high and in
many instances have risen further over recent months.
Australia's terms of trade are at their highest level since the early 1950s and
national income is growing strongly. There have been further indications
that private investment is beginning to pick up in response to high levels
of commodity prices. In the household sector thus far, in contrast, there
continues to be caution in spending and borrowing, and an increase in the
saving rate. Asset values have generally been little changed over recent
months and overall credit growth remains quite subdued, notwithstanding evidence
of some greater willingness to lend.
Employment growth was unusually strong in 2010. Most leading indicators suggest further
growth, though most likely at a slower pace. After the significant decline
in 2009, growth in wages picked up somewhat last year. Some further increase
is likely over the coming year.
Inflation is consistent with the medium-term objective of monetary policy, having
declined significantly from its peak in 2008. Recent data show underlying
inflation at around 2¼ per cent in 2010. The CPI rose by about
2¾ per cent, reflecting the once-off effect of the increase in
tobacco excise. These moderate outcomes are being assisted by the high level
of the exchange rate, the earlier decline in wages growth and strong competition
in some key markets, which have worked to offset large rises in utilities
prices. The Bank expects that inflation over the year ahead will continue
to be consistent with the 2–3 per cent target.
The flooding in Queensland and Victoria is having a temporary adverse effect on economic
activity and prices. Some production of crops and resources has been lost
and some other forms of economic output have also been lower in the affected
Prices for the relevant commodities have risen and are likely to remain elevated
in the near term. Resumption of production is occurring at differing speeds
by region and industry. In setting monetary policy the Bank will, as on past
occasions where natural disasters have occurred, look through the estimated
effects of these short-term events on activity and prices. The focus of monetary
policy will remain on medium-term prospects for economic activity and inflation.
The floods also resulted in damage or destruction to physical capital in the affected
regions. Over the next year or two, the efforts to repair or replace infrastructure
and housing will add modestly to aggregate demand, compared with what would
otherwise likely have occurred. The extent of this net additional effect
will depend on the full extent of the damage, the speed of the rebuilding,
and the extent to which other public and private spending is deferred. The
Bank's preliminary assessment is that the net additional demand from
rebuilding is unlikely to have a major impact on the medium-term outlook
for inflation.
The Bank will of course continue to assess the effects of the floods and the subsequent
recovery, along with all the other factors having a bearing on economic conditions.
At today's meeting, the Board judged that the current stance of monetary
policy remained appropriate in view of the general macroeconomic outlook.
Dr Philip Lowe
Assistant Governor (Economic)
Phone: +61 2 9551 8800
Dr Guy Debelle
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
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