Not a Media Release
||7 August 2012
||For Immediate Release
Not a Statement by Glenn Stevens, Governor: Monetary Policy Decision
At its meeting today, the Board decided to reduce the cash rate by 25 basis points to 3.25 per cent.
Growth in the world economy has moderated in recent months and as a result, there are expectations for further monetary policy easings across most of the world. Recent indicators continue to suggest weakening in Europe and a further slowing in the pace of growth in China. Conditions in other parts of Asia remain firm, although the ongoing trend is unclear and could be dampened by the effects of slower growth outside the region. The United States recovery has recently faltered with a moderation in growth in the most recent period. This global weakness is showing up in on-going falls in commodity prices, which will help to reduce inflation and providing scope for some countries to ease macroeconomic policies. A climate related rise in grains prices, while significant, will be temporary. Australia’s terms of trade are falling and given current global economic trends, more falls are expected over the medium term.
Financial markets remain fickle and sovereign bond yields in many credit worthy countries are at record lows. In other countries, yields have increased to levels that, if sustained, would threaten the borrowing capabilities of countries that currently have the most acute fiscal concerns. In some instances, sovereign bond yields are negative which reflects economic concerns and potentially disinflation risks. Share markets have remained volatile.
In Australia, recent data suggest that the economy continued to grow at a solid pace. Some of this pick up is welcome given emerging capacity is some parts of the economy that was driven by a protracted period of sub-trend growth. Labour market conditions are firm, although the forward indicators for job creation point to softer conditions in the near term. The rate of unemployment remains relatively low.
The June quarter consumer price index was broadly as expected by the Bank and it showed inflation falling to close to multi-decade lows. With global influences and the on-going strength in the Australian dollar exchange rate, there is a material risk that inflation will remain anchored near or below the bottom of the target band, at least in the near term. Over the coming one to two years, and abstracting from the effects of the carbon price, inflation is expected to be consistent with the target.
Interest rates for borrowers remain a little below their medium-term averages. While business credit has increased in recent months, housing and personal credit growth has slowed to near record lows. Consumer deleveraging is continuing in an orderly fashion. House prices are exhibiting some short-term variability, but remain a little below the level seen at the start of the year. The exchange rate has risen strongly in recent months, despite the balance of global economic risks tilting to the downside and even though commodity prices have now materially weakened. The Bank will continue to monitor trends in the Australian dollar and its impact on inflation and the economy.
As a result of recent decisions of the Board to reduce the cash rate, including today, monetary policy is now moderately expansionary. The Board will continue to monitor global economic and financial market trends and will set monetary policy with a view to maintaining inflation in the 2 to 3 per cent band over the medium term.