The RBA’s interest rate statement for June…

June 7, 2011

At its meeting today, the Board decided to leave the cash rate unchanged at 4.75 per cent.

The global economy is continuing its expansion, led by very strong growth in the Asian region, though the recent disaster in Japan is having a major impact on Japanese production, and significant effects on production of some manufactured products further afield. Commodity prices have generally softened a little of late, but they remain at very high levels, which is weighing on income and demand in major countries and also pushing up measures of consumer price inflation. In response, a number of the countries with stronger expansions have been moving to tighten their monetary policy settings over recent months. Overall, though, financial conditions for the global economy remain accommodative. Uncertainty over the prospects for resolution of the banking and sovereign debt problems in Europe has increased over the past couple of months, which has been adding to financial market volatility.

Australia’s terms of trade are reaching very high levels and national income has been growing strongly. Private investment is picking up, led by very large capital spending programs in the resources sector, in response to high levels of commodity prices. Outside the resources sector, investment intentions have been revised lower recently. In the household sector thus far, there continues to be a degree of caution in spending and borrowing and a higher rate of saving out of current income. The impetus from earlier Australian Government spending programs is now also abating, as had been intended.

The floods and cyclones over the summer have reduced output in some key sectors. As a result there was a sharp fall in real GDP in the March quarter, despite a solid increase in aggregate demand. The resumption of coal production in flooded mines is taking longer than initially expected, but production levels are now increasing again and there will be a mild boost to demand from the broader rebuilding efforts as they get under way. Over the medium term, overall growth is likely to be at trend or higher.

Growth in employment has moderated over recent months and the unemployment rate has been little changed, near 5 per cent. Most leading indicators suggest that this slower pace of employment growth is likely to continue in the near term. Reports of skills shortages remain confined, at this point, to the resources and related sectors. After the significant decline in 2009, growth in wages has returned to rates seen prior to the downturn.

Overall credit growth remains quite modest. Signs have continued to emerge of some greater willingness to lend, and business credit has expanded this year after a period of contraction. Growth in credit to households, on the other hand, has softened, as have housing prices. The exchange rate remains, in real effective terms, close to its highest level in several decades. If sustained, this could be expected to exert continued restraint on the traded sector.

CPI inflation has risen over the past year, reflecting the effects of extreme weather and rises in utilities prices, with lower prices for traded goods providing some offset. The weather-affected prices should fall back later in the year, though substantial rises in utilities prices are still occurring. The Bank expects that, as the temporary price shocks dissipate over the coming quarters, CPI inflation will be close to target over the next 12 months.

At today’s meeting, the Board judged that the current mildly restrictive stance of monetary policy remained appropriate. In future meetings, the Board will continue to assess carefully the evolving outlook for growth and inflation.

For more details or to discuss how rate changes might affect your situation please call us on 8451 1500

Your Partner in Success,

Sam Cocks
Managing Director
Urbantech Group

Finance Adelaide, Home Loans Adelaide
http://www.urbantechgroup.com.au

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