RBA Cash Rate: 4.35% · 1AUD = 0.67 USD · Inflation: 4.1%  

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Statement by the Governor, Mr Bernie Fraser: Monetary Policy

Number:1990-20
Date:2 August 1990.

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The Reserve Bank will be operating in the domestic money market this morning with a view to reducing cash rates by about one percentage point.

This action is being taken following the regular late July meeting of the Board and after consultations with the Treasurer.

At its meeting earlier this week, the Board reviewed all the available data on current and prospective trends in the economy. While inflation is still too high, it was judged to be moving in the right direction. Evidence of some moderation in inflation has been accumulating for some time from the various price indices, and from a fall in asset prices. Yesterday’s Consumer Price Index release confirmed these trends.

Inflationary pressures are expected to ease further as the economy continues to slow. Although some sectors are faring better than others, most indicators point to very moderate levels of domestic demand overall. Consumer spending generally is subdued, imports have declined significantly during the course of 1989/90, and business investment is falling. Credit growth has declined markedly from earlier high rates.

In these circumstances, the Board believes a modest reduction in interest rates is appropriate and consistent with maintaining a medium-term goal of lowering the current account deficit and inflation while avoiding an excessive slowdown in economic activity.

It is expected that this reduction in cash rates will flow through quickly and fully to banks’ indicator lending rates. Even so, interest rates will remain at relatively high levels.

Decisions on future changes in interest rates will be taken in the light of developments in inflation and economic activity.

Source: Reserved Bank of Australia

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