Statement by Glenn Stevens, Governor: Monetary Policy - November 2009 | Media Releases | RBA
Central bank: rba | Type: statement | Date: 2009-11-03

Media Release
Statement by Glenn Stevens, Governor: Monetary Policy
3 November 2009
At its meeting today, the Board decided to raise the cash rate by 25 basis points
to 3.5 per cent, effective 4 November 2009.
The global economy has resumed growth. With economic policy settings likely to remain
expansionary for some time, the recovery is likely to continue during 2010
and forecasts have been revised higher. The expansion is generally expected
to be modest in the major countries, due to the continuing legacy of the
financial crisis. Prospects for Australia's Asian trading partners
appear to be noticeably better. Growth in China has been very strong, which
is having a significant impact on other economies in the region and on commodity
markets. For Australia's trading partner group, growth in 2010 is likely
to be close to trend.
Sentiment in global financial markets is much better than earlier in the year. Nonetheless,
the state of balance sheets in some major countries remains a potential constraint
on their expansion.
Economic conditions in Australia have been stronger than expected and measures of
confidence have recovered. Some spending has probably been brought forward
by the various policy initiatives. With those effects now diminishing, these
areas of demand may soften somewhat. Some types of capital spending are likely
to be held back for a while by financing constraints, but it now appears
that private investment will not be as weak as earlier expected. Medium-term
prospects for investment appear, moreover, to be strengthening. Higher dwelling
activity and public infrastructure spending are also starting to provide
more support to spending. There have been some early signs of an improvement
in labour market conditions. The rate of unemployment is now likely to peak
at a considerably lower level than earlier expected.
Inflation has been declining for the past year. In underlying terms, inflation should
continue to moderate in the near term, but now will probably not fall as
far as earlier thought. Headline CPI inflation on a year-ended basis has
been unusually low because of temporary factors, and will probably rise somewhat
over the coming year. Both CPI and underlying inflation are expected to be
consistent with the target in 2010.
Housing credit growth has been solid and dwelling prices have risen appreciably this
year. Business borrowing has been declining as companies have sought to reduce
leverage in an environment of tighter lending standards. For many business
borrowers, increases in risk margins are still coming through. The decline
in credit has been concentrated among large firms, which have had good access
to equity capital and, more recently, to debt markets. Share markets have
recovered significant ground.
The Board noted that the rise in the exchange rate is likely to constrain output
in the tradeables sector and dampen price pressures. Nonetheless, growth
is likely to be close to trend over the year ahead and inflation close to
target. With the risk of serious economic contraction in Australia now having
passed, the Board's view is that it is prudent to lessen gradually
the degree of monetary stimulus that was put in place when the outlook appeared
to be much weaker. The adjustments at the October and November meetings will
work to increase the sustainability of growth in economic activity and keep
inflation consistent with the target over the years ahead.
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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