The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Wayne Swan

Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

11 February 2008

NO.007

RBA Statement on Monetary Policy

Today's Reserve Bank Statement on Monetary Policy highlights the extent of the inflation legacy we face, and steels the Government's resolve to implement its five-point plan to fight inflation.

The Reserve Bank is forecasting higher inflation as a consequence of capacity constraints that have been evident for some time.

The Reserve Bank's latest forecasts indicate an elevated level of underlying inflation will persist over the next two years, with inflation expected to be above 3 per cent until mid 2010.

These forecasts are up to half a percentage point higher than those contained in the November Statement. The higher expected inflation is the result of price increases that have already occurred and the expectation that pressures on capacity will remain for some time.

A number of indicators referred to in the Statement show inflationary pressures are well above recent historical levels, including National Accounts measures of wages growth, skilled labour shortages and capacity utilisation.

The Statement is a sobering assessment of how ill-prepared the economy has been to absorb the demand surge flowing from the terms of trade boom.

This bolsters the Government's determination to address the inflation legacy, through expanding the productive capacity of the economy and putting an end to the Coalition era of reckless spending.

Now is the time to exercise restraint.

The Government is leading by example by cutting wasteful spending to strengthen the Budget position and make room for future productive investment.

Balancing the risks of higher inflation, the Statement highlights the weakening outlook for world economic growth, in large part reflecting a deterioration in growth prospects in the US and other major developed economies.

Nevertheless the Reserve Bank expects growth in emerging economies, particularly China, to support solid growth domestically.

The Rudd Government's measures to modernise the economy are important for enhancing the flexibility and competitiveness of the Australian economy and helping us meet global economic challenges and opportunities.

11 February 2008