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Blog

June 3rd, 2014

At its meeting today, the Board decided to leave the cash rate unchanged at  2.5 per cent.

Growth in the global economy is continuing at a moderate pace, helped by  firmer conditions in the advanced countries. China’s growth appears to have  slowed a little in early 2014 but remains generally in line with policymakers’  objectives. Commodity prices in historical terms remain high, but some of those  important to Australia have continued to decline of late.

Financial conditions overall remain very accommodative. Long-term interest  rates have fallen further and risk spreads remain low. Emerging market economies  are once again receiving capital inflows. Volatility in many financial prices is  currently unusually low. Markets appear to be attaching a very low probability  to any rise in global interest rates over the period ahead.

In Australia, the economy grew at a below-trend pace in 2013 overall, but  growth looks to have been somewhat firmer around the turn of the year. This has  resulted partly from very strong increases in resource exports as new capacity  has come on stream, but smaller increases in such exports are likely in coming  quarters. Moderate growth has been occurring in consumer demand and a strong  expansion in housing construction is now under way. At the same time, resources  sector investment spending is set to decline significantly. Signs of improvement  in investment intentions in some other sectors are emerging, but these plans  remain tentative, as firms wait for more evidence of improved conditions before  committing to significant expansion. Public spending is scheduled to be subdued.

There has been some improvement in indicators for the labour market in recent  months, but it will probably be some time yet before unemployment declines  consistently. Recent data confirm that growth in wages has declined noticeably.  If these and other domestic costs remain contained, inflation should remain  consistent with the target over the next one to two years, even with lower  levels of the exchange rate.

Monetary policy remains accommodative. Interest rates are very low and for  some borrowers have edged lower over recent months. Savers continue to look for  higher returns in response to low rates on safe instruments. Credit growth has  picked up a little. Dwelling prices have increased significantly over the past  year, though there have been some signs of a moderation in the pace of increase  recently. The earlier decline in the exchange rate is assisting in achieving  balanced growth in the economy, but less so than previously as a result of the  higher levels over the past few months. The exchange rate remains high by  historical standards, particularly given the further decline in commodity
prices.

Looking ahead, continued accommodative monetary policy should provide support  to demand, and help growth to strengthen over time. Inflation is expected to be  consistent with the 2–3 per cent target over the next two years.

In the Board’s judgement, monetary policy is appropriately  configured to foster sustainable growth in demand and inflation outcomes  consistent with the target. On present indications, the most prudent course is  likely to be a period of stability in interest rates.

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Thanks so much for the tickets to Love Never Dies. We had a really nice night out.

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