Statement by Glenn Stevens, Governor: Monetary Policy Decision - April 2012 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2012-04-03

Media Release
Statement by Glenn Stevens, Governor:
Monetary Policy Decision
3 April 2012
At its meeting today, the Board decided to leave the cash rate unchanged at 4.25
Recent information is consistent with the expectation that the world economy will
grow at a below-trend pace this year, but does not suggest that a deep downturn
is occurring. Several countries in Europe will record very weak outcomes,
but the US economy is continuing a moderate expansion. Growth in China has
moderated, as was intended, and is likely to remain at a more measured and
sustainable pace in the future. Conditions around other parts of Asia softened
in 2011, partly due to natural disasters, but are not showing signs of further
deterioration. Some moderation in inflation has allowed policymakers in the
region to ease monetary policies somewhat. Commodity prices declined for
a few months last year and are noticeably off their peaks, but have been
relatively stable for a while now, at quite high levels. Australia's
terms of trade have peaked, though they remain high.
Financial market sentiment has generally continued to improve in recent weeks and
capital markets are supplying funding to corporations and well-rated banks.
At the margin, wholesale funding costs are tending to decline, though they
remain higher, relative to benchmark rates, than in mid 2011. But the task
of putting European banks and sovereigns onto a sound footing for the longer
term remains large and Europe will remain a potential source of adverse shocks
for some time yet.
In Australia, growth in domestic demand ran at its fastest for four years in 2011,
driven by private spending. Nonetheless the balance of recent information
suggests that output growth was somewhat below trend over the year. There
are differences in performance between sectors, and considerable structural
change is occurring. Labour market conditions softened during 2011, though
the rate of unemployment has been little changed for some time.
Interest rates for borrowers remain close to their medium-term average. Credit
growth remains modest. Housing prices have shown some signs of stabilising
recently, after having declined for most of 2011, but generally the housing
market remains soft. The exchange rate has remained high over recent months,
even though the terms of trade have declined somewhat.
In underlying terms, inflation was around 2½ per cent in 2011. CPI inflation
was higher than that but will fall over the next quarter or two. It is currently
expected that inflation will be in the 2–3 per cent range over the
coming one to two years. This forecast abstracts from the effects of the
carbon price and also embodies an assumption that productivity growth in
the economy increases somewhat as a result of the structural change now occurring.
At its next meeting, the Board will have the opportunity to reassess the
outlook for inflation, taking into account not only data on demand and output
but also forthcoming information on prices.
The Board eased monetary policy late in 2011. Since then, its judgement has been
that, with growth expected to be close to trend, inflation close to target
and lending rates close to average, the setting of monetary policy was appropriate.
The Board's view was also that, were demand conditions to weaken materially,
the inflation outlook would provide scope for easier monetary policy. At
today's meeting, the Board judged the pace of output growth to be somewhat
lower than earlier estimated, but also thought it prudent to see forthcoming
key data on prices to reassess its outlook for inflation, before considering
a further step to ease monetary policy.
Dr Christopher Kent
Assistant Governor (Economic)
Phone: +61 2 9551 8800
Dr Guy Debelle
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
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