RBA MEDIA RELEASE- Monetary Policy Decision
Statement by Glenn Stevens, Governor
As per its meeting yesterday, the Board decided to lower the cash rate by 25
basis points to 3.25 per cent, effective today, 3 October 2012.
The outlook for growth in the world economy has softened over recent
months, with estimates for global GDP being edged down, and risks to the
outlook still seen to be on the downside. Economic activity in Europe is
contracting, while growth in the United States remains modest. Growth in China
has also slowed, and uncertainty about near-term prospects is greater than it
was some months ago. Around Asia generally, growth is being dampened by the
more moderate Chinese expansion and the weakness in Europe.
Key commodity prices for Australia remain significantly lower than
earlier in the year, even though some have regained some ground in recent
weeks. The terms of trade have declined by over 10 per cent since the peak last
year and will probably decline further, though they are likely to remain
historically high.
Financial markets have responded positively over the past few months to
signs of progress in addressing Europe's financial problems, but expectations
for further progress remain high. Low appetite for risk has seen long-term
interest rates faced by highly rated sovereigns, including Australia, remain at
exceptionally low levels. Nonetheless, capital markets remain open to
corporations and well-rated banks, and Australian banks have had no difficulty
accessing funding, including on an unsecured basis. Share markets have
generally risen over recent months.
In Australia, most indicators available for this meeting suggest that
growth has been running close to trend, led by very large increases in capital
spending in the resources sector. Consumption growth was quite firm in the
first half of 2012, though some of that strength was temporary. Investment in
dwellings has remained subdued, though there have been some tentative signs of
improvement, while non-residential building investment has also remained weak.
Looking ahead, the peak in resource investment is likely to occur next year,
and may be at a lower level than earlier expected. As this peak approaches it
will be important that the forecast strengthening in some other components of
demand starts to occur.
Labour market data have shown moderate employment growth and the rate of
unemployment has thus far remained low. The Bank's assessment, though, is that
the labour market has generally softened somewhat in recent months.
Inflation has been low, with underlying measures near 2 per cent over
the year to June, and headline CPI inflation lower than that. The introduction
of the carbon price is affecting consumer prices in the current quarter, and
this will continue over the next couple of quarters. Moderate labour market
conditions should work to contain pressure on labour costs in sectors other
than those directly affected by the current strength in resources. This and
some continuing improvement in productivity performance will be needed to keep
inflation low as the effects of the earlier exchange rate appreciation wane.
The Bank's assessment remains, at this point, that inflation will be consistent
with the target over the next one to two years.
Interest rates for borrowers have for some months been a little below
their medium-term averages. There are tentative signs of this starting to have
some of the expected effects, though the impact of monetary policy changes
takes some time to work through the economy. However, credit growth has
softened of late and the exchange rate has remained higher than might have been
expected, given the observed decline in export prices and the weaker global
outlook.
At yesterday's meeting, the Board judged that, on the back of international
developments, the growth outlook for next year looked a little weaker, while
inflation was expected to be consistent with the target. The Board therefore
decided that it was appropriate for the stance of monetary policy to be a
little more accommodative.
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