Statement by Glenn Stevens, Governor: Monetary Policy Decision - February 2010 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2010-02-02

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
2 February 2010
At its meeting today, the Board decided to leave the cash rate unchanged at 3.75
The global economy is growing, and world GDP is expected to rise at close to trend
pace in 2010 and 2011. The expansion is still likely to be modest in the
major countries, due to the continuing legacy of the financial crisis, resulting
in ongoing excess capacity. In Asia, where financial sectors are not impaired,
recovery has been much quicker to date, though the Chinese authorities are
now seeking to reduce the degree of stimulus to their economy. Global financial
markets are functioning much better than they were a year ago. Credit conditions
nonetheless remain difficult in the major countries as banks continue to
face loan losses associated with the period of economic weakness. Concerns
regarding some sovereigns have increased.
In Australia, economic conditions have been stronger than expected, after a mild
downturn a year ago. The effects of the fiscal stimulus on consumer demand
have now faded, but household finances are being supported by strong labour
market outcomes and a recovery in net worth. Public infrastructure spending
is now boosting demand, as is an upturn in housing construction. Investment
in the resources sector is strong. The rate of unemployment appears to have
peaked at a much lower level than earlier expected.
Inflation has, as expected, declined in underlying terms from its peak in 2008, helped
by the fall in commodity prices at the end of 2008, a noticeable slowing
in private‑sector labour costs during 2009, the recent rise in the
exchange rate and a period of slower growth in demand. CPI inflation has
risen somewhat recently as temporary factors that had been holding it down
are now abating. Inflation is expected to be consistent with the target in
Credit for housing has been expanding at a solid pace, and dwelling prices have risen
significantly over the past year. Business credit, in contrast, has continued
to fall, as companies have sought to reduce leverage, and lenders have imposed
tighter lending standards and in some cases sought to scale back their balance
sheets. The decline in credit has been concentrated among large firms, which
generally have had good access to equity capital and, more recently, to debt
markets; credit conditions remain difficult for many smaller businesses.
With the risk of serious economic contraction in Australia having passed, the Board
had moved at recent meetings to lessen the degree of monetary stimulus that
was put in place when the outlook appeared to be much weaker. Lenders have
generally raised rates a little more than the cash rate over recent months
and most loan rates have risen by close to a percentage point. Since information
about the early impact of those changes is still limited, the Board judged
it appropriate to hold a steady setting of monetary policy for the time being.
Interest rates to most borrowers nonetheless remain lower than average. If economic
conditions evolve broadly as expected, the Board considers it likely that
monetary policy will, over time, need to be adjusted further in order to
ensure that inflation remains consistent with the target over the medium
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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