Not a Media Release
3 April 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 4.00 per cent.
Recent information is consistent with the expectation that the world economy will grow at a below-trend pace this year, but recent information suggests that that a deep downturn is unlikely. Several European countries are recording very weak outcomes, but the US economy is continuing a moderate expansion but with significant amounts of spare capacity. Growth in China has moderated and inflation is falling sharply - policy has been eased. Conditions around other parts of Asia remain firm, although activity, on average, is moderate. Some lowering in inflation has allowed policymakers in the region to ease monetary policies somewhat. Commodity prices have been broadly flat in recent weeks, but are below the peak levels recorded during 2011.
The acute financial pressures on banks in Europe have been alleviated considerably by the actions of policymakers, though there is more to do to put European banks and sovereigns onto a sound footing for the longer term and Europe will remain a potential source of negative shocks for some time yet. Financial market sentiment has continued to improve in recent months and capital markets are again supplying funding to corporations and well-rated banks, albeit at costs that are higher, relative to benchmark rates, than in mid 2011.
Information on the Australian economy has been mixed, with the national accounts confirming that overall economic growth in 2011 was below trend. Partial indicators for the early months of 2012 point to ongoing moderate growth rather than an acceleration in activity. This means that an output gap is starting to open which, in time, will dampen inflation. Labour market conditions remain soft, although the unemployment rate remains relatively low around 5¼ per cent. CPI inflation is forecast to remain around 2½ per cent with risks moving to the downside given the sub-trend growth rate and softer labour market conditions. Looking forward, fiscal policy will impart a further contractionary influence on economic activity.
Interest rates for borrowers remain close to their medium-term average. Credit growth remains modest. Having declined through the course of 2011, housing price falls have moderated, while dwelling construction remains weak. The exchange rate has been reasonable steady in recent months, albeit at a high level, even though the terms of trade have declined.
With growth below trend and inflation close to target, the Board judged that a further moderate cut in the official cash rate to 4.00 per cent to be appropriate. The Board will continue to monitor information on economic and financial conditions and adjust the cash rate as necessary to foster sustainable growth and low inflation.