Statement by Glenn Stevens, Governor: Monetary Policy Decision - December 2014 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2014-12-02

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
2 December 2014
At its meeting today, the Board decided to leave the cash rate unchanged at
2.5 per cent
Growth in the global economy is continuing at a moderate pace. China's
growth has generally been in line with policymakers' objectives. While
weakening property markets present a challenge in the near term, economic
policies have been responding in a way that should support growth. The US
economy continues to strengthen, but the euro area and Japan have both seen
weakness recently. Some key commodity prices have declined significantly
in recent months, reflecting somewhat softer demand and, more importantly,
increased supply.
Global financial conditions remain very accommodative and long-term interest
rates and risk spreads remain very low. Differences in monetary policies
across the large jurisdictions are affecting markets, particularly exchange
In Australia, most data are consistent with moderate growth in the economy.
Resources sector investment spending is starting to decline significantly,
while some other areas of private demand are seeing expansion, at varying
rates. Public spending is scheduled to be subdued. Overall, the Bank still
expects growth to be a little below trend for the next several quarters.
Inflation is running between 2 and
3 per cent
, as expected, with recent data confirming subdued rises
in labour costs. Although some forward indicators of employment have been
firming this year, the unemployment rate has edged higher. The labour market
has a degree of spare capacity and it will probably be some time yet before
unemployment declines consistently. Hence, growth in wages is expected to
remain relatively modest over the period ahead, which should keep inflation
consistent with the target even with lower levels of the exchange rate.
Monetary policy remains accommodative. Interest rates are very low and have
continued to edge lower over the past year or so as competition to lend has
increased. Investors continue to look for higher returns in response to low
rates on safe instruments. Credit growth is moderate overall, but with a
further pick-up in recent months in lending to investors in housing assets.
Dwelling prices have continued to rise.
The exchange rate has traded at lower levels recently, in large part reflecting
the strengthening US dollar. But the Australian dollar remains above most
estimates of its fundamental value, particularly given the significant declines
in key commodity prices in recent months. A lower exchange rate is likely
to be needed to achieve balanced growth in the economy.
Looking ahead, continued accommodative monetary policy should provide support
to demand and help growth to strengthen over time. Inflation is expected
to be consistent with the 2–
3 per cent
target over the next two years.
In the Board's judgement, monetary policy is appropriately configured
to foster sustainable growth in demand and inflation outcomes consistent
with the target. On present indications, the most prudent course is likely
to be a period of stability in interest rates.
Media Office
Information Department