RBA’s Statement on Monetary Policy

by Stephan Smith on November 6, 2010

Welcome to my post titled ‘Reserve Bank of Australia’s Statement on Monetary Policy’. This is all about the Reserve Bank of Australia and what they plan to do, as revealed on their monthly statement on monetary policy. I will be covering and commenting on the RBA’s statements on monetary policy whenever I get the chance to read it. If you have an opinion regarding the Reserve Bank of Australia’s statement on monetary policy, then make sure you leave a comment.

Table of Contents


November 2010

As I sit here and read the Reserve Bank of Australia’s Statement on Monetary Policy that was released in November 2010, it’s good to know that at least one established country is doing well. Overall, everything seems to be going just fine for Australia. China, which is a major influencer to Australia’s economic success seems to be economically growing at a sustainable pace. There were talks that China’s economic growth would slow more than it has, but fortunately for China and Australia, China’s growth contracted only slightly.

“In China and in most of east Asia, growth looks to have returned to a sustainable pace and concerns about the possibility of a larger-than-expected slowing have lessened recently.”

- Reserve Bank of Australia, Statement on Monetary Policy Nov. 2010

Glenn StevensThe statement also revealed to me that countries like China and even emerging markets may have to start tighten their monetary policies, not only to cool down their respective economies but to fend off the effects from a possible increase of capital inflows; effects that would be similar to a central bank increasing it’s country’s money supply. The RBA also touched on the United State’s economy, the Federal Reserve and Quantitative Easing 2.

Inflation in a number of these countries continues to move lower and unemployment rates remain high. In the United States, this has prompted the Federal Reserve to announce a further significant expansion of its balance sheet.”

- Reserve Bank of Australia, Statement on Monetary Policy Nov. 2010

It also caught my eye that the RBA believes that the FED’s QE2 will result in a “…significant expansion of its balance sheet.” Yes, $600 billion dollars is significant to me personally, but if another central bank such as the Reserve Bank of Australia considers a move such as QE2 to be “significant”, that’s saying something.

The Australian economy is also benefiting nicely from high commodity prices.

“The economy is continuing to benefit from the high level of commodity prices, with nominal income growing very strongly over the past year. The prices of many commodities have increased further recently and Australia’s terms of trade are estimated to have reached around the highest level since at least Federation.”

- Reserve Bank of Australia, Statement on Monetary Policy Nov. 2010

With all the good economic news circling Australia, consumer confidence is definitely high. The unemployment rate has been improving; dropping around three quarters of a percent in a little more than a year. Fortunately, the employment situation should continue to improve in the future.

“The forward looking indicators point to a continuation of solid employment growth, although below the pace seen over the recent past.”

- Reserve Bank of Australia, Statement on Monetary Policy Nov. 2010

Reserve Bank of AustraliaThe Australian dollar has strengthen significantly against the United States dollar and other major currencies in the past year. As a result of that, there has been an increase of Australians that have been visiting and vacationing abroad rather than domestically. Inflation is between the 2 – 3 percent annual range since the September 2010 quarter; that is perfectly in the RBA’s inflation target range of 2 – 3 percent for the medium term. In my opinion, inflation should remain stable or possibly decrease slightly in the short to medium term. Interest rates seem appropriate at 4.75 percent for the time being.




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