By Nadia Surace
INTEREST rates remain unchanged with the Reserve Bank of Australia Board last week deciding to leave the cash rate at 4.75 per cent.
Board Governor, Glenn Stevens said the decision was made with consideration of the changing economic climate which appropriated the monetary policy to exert a degree of restraint.
“The global economy is continuing its expansion, but the pace of growth slowed in the June quarter,” he explained.
“The supply-chain disruptions from the Japanese earthquake and the dampening effects of high commodity prices on income and spending in major countries both contributed to the slowing. It is still not clear how persistent this slower growth will be. The supply-chain disruptions are now gradually abating and commodity prices have softened of late, though they generally remain high.”
Mr Stevens said the central scenario for the world economy over the next couple of years envisaged by most forecasters remains one of growth below the pace of 2010, but at or above long-term averages.
“Downside risks have increased, however, as concerns have grown over the outlook for the public finances of both Europe and the United States.
“Australia’s terms of trade are now at very high levels and national income has been growing strongly. Investment in the resources sector is picking up very strongly and some related service sectors are enjoying better than average conditions. But in other sectors, cautious behaviour by households and the high level of the exchange rate are having a noticeable dampening effect. The impetus from earlier Australian Government spending programs is now also abating, as had been intended.”
Mr Stevens said the resumption of coal production is continuing, but a full recovery of flood-affected production looks unlikely before early next year. “Precautionary behaviour by households also looks likely to keep some areas of demand weaker in the near term than earlier expected. Over the medium term, overall growth is still likely to be at trend or higher, unless the world economy deteriorates noticeably.
He said the Board also remains concerned about the medium-term outlook for inflation which contributed to the Board’s decision.
“At today’s meeting, the Board considered whether the recent information warranted further policy tightening. On balance, the Board judged that it was prudent to maintain the current setting of monetary policy, particularly in view of the acute sense of uncertainty in global financial markets over recent weeks,” said following the announcement.
“In future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation.”