Statement by Glenn Stevens, Governor: Monetary Policy - December 2008 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2008-12-02

Media Release
Statement by Glenn Stevens, Governor: Monetary Policy
2 December 2008
At its meeting today, the Board decided to reduce the cash rate by a further 100 basis
points, to 4.25 per cent, effective 3 December 2008.
Recent actions by governments and central banks to stabilise their respective financial
systems have begun to take effect.  Nonetheless, financial market sentiment
remains fragile, as evidence accumulates of weak economic conditions in the
major countries and a significant slowing in many emerging countries.
Commodity prices have fallen further.  This, combined with the likelihood
of below-trend growth in the global economy, suggests that global inflation
will moderate significantly in 2009.
The Australian economy has been more resilient than other advanced economies, but
recent data nonetheless indicate that a significant moderation in demand
and activity has been occurring. With confidence affected by the financial
turbulence and a decline in the terms of trade now under way, more cautious
behaviour by both households and businesses is likely to see private demand
remain subdued in the near term. With that outlook, and with capacity pressures
now easing, it is likely that inflation in Australia will soon start to fall.
Global disinflationary forces will assist in this regard, though the depreciation
of the exchange rate means that the decline of inflation to the target could
take longer than would otherwise have been the case.
Weighing up the international and domestic developments of recent months, the Board
judged that a further significant reduction in the cash rate was warranted
now, to take monetary policy to an expansionary setting.  As a result
of today's decision, the cash rate will be at its previous cyclical
low point.  Given trends in money market yields, most lending rates
should fall significantly and will also reach below-average levels.
There has now been a major easing in monetary policy over the past few months.
Together with the spending measures announced by the Government, and a large
fall in the Australian dollar exchange rate, significant policy stimulus
will be supporting demand over the year ahead.  The Board will continue
to monitor developments and make adjustments as needed to promote sustainable
growth consistent with achieving the 2–3 per cent inflation target
over time.
Dr Malcolm Edey
Assistant Governor (Economic)
Phone: +61 2 9551 8800
Dr Guy Debelle
Assistant Governor (Financial Markets)
Phone: +61 2 9551 8200
Manager, Media Office
Information Department