According to the Statement by Glenn Stevens, Governor Reserve Bank of
Australia, Global growth is forecast to be a little below average for a
time, but the downside risks appear to be reduced. While Europe remains
in recession, the United States is experiencing a moderate expansion
and growth in China has stabilized at a fairly robust pace. Around Asia
generally, growth was dampened by the earlier slowing in China and the
weakness in Europe, but again there are signs of stabilization.
Commodity prices have declined somewhat recently, but are still at
historically high levels. Internationally, financial conditions are very
accommodative. Risk spreads are narrow and funding conditions for
financial institutions have improved. Long-term interest rates faced by
highly rated sovereigns, including Australia, remain at exceptionally
low levels. Borrowing conditions for large corporations are similarly
very attractive. Share prices are substantially above their low points.
However, the task of putting private and public finances on sustainable
paths in several major countries is far from complete. Accordingly,
financial markets remain vulnerable to setbacks.
In Australia,
growth was close to trend over 2012, led by very large increases in
capital spending in the resources sector, while some other sectors
experienced weaker conditions. Looking ahead, the peak in resource
investment is drawing close. There will, therefore, be more scope for
some other areas of demand to strengthen. Recent information suggests
that moderate growth in private consumption spending is occurring,
though a return to the very strong growth of some years ago is unlikely.
While the near-term outlook for investment outside the resources sector
is relatively subdued, a modest increase is likely to begin over the
next year. Dwelling investment is slowly increasing, with rising
dwelling prices and high rental yields. Exports of natural resources are
strengthening. Public spending, in contrast, is forecast to be
constrained. Inflation is consistent with the medium-term target, with
both headline CPI and underlying measures at around 2¼ per cent on the
latest reading. Labor costs remain contained and businesses are focusing
on lifting efficiency. These trends should help to keep inflation low,
even as the effects on prices of the earlier exchange rate appreciation
wane. The Bank's assessment remains that inflation will be consistent
with the target over the next one to two years. There are a number of
indications that the substantial easing of monetary policy during late
2011 and 2012 is having an expansionary effect on the economy. Further
such effects can be expected to emerge over time. On the other hand, the
exchange rate, which has risen recently, remains higher than might have
been expected, given the observed decline in export prices. The demand
for credit has also remained low thus far, as some households and firms
continue to seek lower debt levels.
The Board's view is that with
inflation likely to be consistent with the target, and with growth
likely to be a little below trend over the coming year, an accommodative
stance of monetary policy is appropriate. The inflation outlook, as
assessed at present, would afford scope to ease policy further, should
that be necessary to support demand. At today's meeting, the Board
judged that it was prudent to leave the cash rate unchanged. The Board
will continue to assess the outlook and adjust policy as needed to
foster sustainable growth in demand and inflation outcomes consistent
with the target over time. At its meeting today, the Board decided to
leave the cash rate unchanged at 3.0 per cent.
source by Commodity Insights
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