Statement by Glenn Stevens, Governor: Monetary Policy Decision - May 2010 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2010-05-04

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
4 May 2010
At its meeting today, the Board decided to raise the cash rate by 25 basis
points to 4.5 per cent, effective 5 May 2010.
Recently, forecasts for world GDP growth have been revised up again, and growth
is expected to be at trend pace or a little above in 2010. Conditions in
Europe remain quite weak, though recent data suggest growth is becoming more
established in North America. In Asia, where financial sectors are not impaired,
growth has continued to be strong, contributing to pressure on prices for
raw materials. The authorities in several countries outside the major industrial
economies have now started to reduce the degree of stimulus to their economies.
Global financial markets are functioning much better than they were a year
ago, but sovereign risk concerns have escalated significantly in Europe over
recent weeks. This has prompted additional efforts by policymakers to put
fiscal policies onto a sounder footing and to provide support for Greece
in the near term. To date, there has been very little contagion outside Europe.
Australia's terms of trade are rising by more than earlier expected,
and this year will probably regain the peak seen in 2008. This will add to
incomes and foster a build-up in investment in the resources sector. Under
these conditions, output growth over the year ahead is likely to exceed that
seen last year, even though the effects of earlier expansionary policy measures
will be diminishing. The process of business sector deleveraging is moderating,
with business credit stabilising and indications that lenders are starting
to become more willing to lend to some borrowers, though credit conditions
for some sectors remain difficult. Credit outstanding for housing has been
expanding at a solid pace. New loan approvals for housing have moderated
over recent months as interest rates have risen and the impact of large grants
to first-home buyers has tailed off. Nonetheless, at this point the market
for established dwellings is still characterised by considerable buoyancy,
with prices continuing to increase over recent months.
Recent data on inflation confirm that it has declined from its peak in 2008,
helped by a noticeable slowing in private-sector labour costs during 2009,
the rise in the exchange rate and the earlier period of slower growth in
demand. In both underlying and CPI terms, inflation over the most recent
12 months was around 3 per cent. Nonetheless, the extent of decline
from here may not be quite as much as earlier forecast and inflation now
appears likely to be in the upper half of the target zone over the coming
With the risk of serious economic contraction in Australia having passed some
time ago, the Board has been adjusting the cash rate towards levels that
would be consistent with interest rates to borrowers being close to the average
experience over the past decade or more. The Board expects that, as a result
of today's decision, rates for most borrowers will be around average
levels. This represents a significant adjustment from the very expansionary
settings reached a year ago.
The Board will continue to assess prospects for demand and inflation, and
set monetary policy as needed to achieve an average inflation rate of 2–3 per cent over time.
Dr Philip Lowe
Assistant Governor (Economic)
Phone: +61 2 9551 8800
Dr Guy Debelle
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
Media Office
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