Statement by Glenn Stevens, Governor: Monetary Policy Decision - September 2010 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2010-09-07

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
7 September 2010
At its meeting today, the Board decided to leave the cash rate unchanged at 4.5 per
The global economy grew faster than trend over the year to mid 2010, but will probably
ease back to about trend pace over the coming year. Growth in China is moderating
to a more sustainable rate as policies are now less accommodating. Similar
adjustments to policies and growth rates are occurring in other countries
in the Asian region. In Europe, output has improved significantly so far
this year, but prospects for next year are probably for slower growth given
planned fiscal contraction. US growth was solid in the first half of 2010
but the pace of expansion in the second half of the year is looking weaker.
Financial markets are functioning more smoothly than they were a few months ago,
though caution persists, with equity prices soft and yields on sovereign
bonds issued by major countries reaching unusually low levels. Commodity
prices are also off their peaks, though those most important for Australia
remain at very high levels, and the terms of trade have regained their peak
of two years ago.
Recent information suggests that the Australian economy has been growing at around
trend pace. This has been helped by high levels of public spending over the
past year but private demand has also been firming. The high level of the
terms of trade is boosting incomes, which will tend to add to demand over
the year ahead, while the effects of earlier expansionary policy measures
will be diminishing. Indications are that business investment in particular
could increase strongly.
Domestic credit and asset markets present a more balanced picture than six months
ago. Business credit has stabilised and while credit conditions for some
sectors remain difficult, evidence is slowly emerging of more willingness
to lend. Credit outstanding for housing has slowed a little over recent months,
and the upward pressure on dwelling prices appears to have abated.
The demand for labour has firmed over the past year in line with improving growth.
After the significant decline last year, growth in wages has picked up somewhat,
as had been expected. Through to mid 2011, underlying inflation is likely
to be in the top half of the target zone, while CPI inflation will probably
be just above 3 per cent for a few quarters due to the impact of the
tobacco tax changes.
The current setting of monetary policy is resulting in interest rates to borrowers
around their average levels of the past decade. With growth in the near term
likely to be close to trend, inflation close to target and with the global
outlook remaining somewhat uncertain, the Board judged this setting of monetary
policy to be appropriate for the time being.
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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