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Rates Outcome August 2011

RBA Leaves Official Cash Rate Unchanged

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


Statement by Glenn Stevens, Governor Monetary Policy RBA

The global economy is continuing its expansion, but the pace of growth slowed in the June quarter. 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. In China most indications suggest only a mild slowdown so far.

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.

The resumption of coal production continues, but a full recovery of flood-affected production now 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. Overall, growth in real GDP through 2011 is now likely to be at about trend. Over the medium term, overall growth is still likely to be at trend or higher, unless the world economy deteriorates noticeably.

Growth in employment has moderated and the unemployment rate has been little changed, near 5 per cent, for some time now. 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, though productivity growth remains weak.

Year-ended CPI inflation has been high, affected by the extreme weather events earlier in the year. As these effects reverse over the next couple of quarters, CPI inflation should decline. But measures that give a better indication of the trend in inflation have begun to rise over the past six months, after declining for the previous two years. While they have, to date, remained consistent with the 2-3 per cent target on a year
 

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