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RBA Holds Rates at 3.75pc

Tuesday, 2nd February 2010

Statement by Glenn Stevens, Governor: Monetary Policy Decision: At its meeting today, the Board decided to leave the cash rate unchanged at 3.75 per cent. The global economy is growing, and world GDP is expected to rise at close to trend pace in 2010 and 2011. The expansion is still likely to be modest in the major countries, due to the continuing legacy of the financial crisis, resulting in ongoing excess capacity. In Asia, where financial sectors are not impaired, recovery has been much quicker to date, though the Chinese authorities are now seeking to reduce the degree of stimulus to their economy. Global financial markets are functioning much better than they were a year ago. Credit conditions nonetheless remain difficult in the major countries as banks continue to face loan losses associated with the period of economic weakness.

In Australia, economic conditions have been stronger than expected. The effects of the fiscal stimulus on consumer demand have now faded, but household finances are being supported by strong labour market outcomes and a recovery in net worth.

Inflation has, as expected, declined in underlying terms from its peak in 2008, helped by the fall in commodity prices at the end of 2008, a noticeable slowing in private sector labour costs during 2009, the recent rise in the exchange rate and a period of slower growth in demand. CPI inflation has risen somewhat recently as temporary factors that had been holding it down are now abating.

Interest rates to most borrowers nonetheless remain lower than average. If economic conditions evolve broadly as expected, the Board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term.