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Rates on hold as demand slows

Staff Reporter 3 minute read

The RBA has decided to leave the cash rate unchanged at 7.25 per cent.

Speaking of the decision to leave rates on hold, Glenn Stevens, RBA monetary policy governor, said that evidence was accumulating that a slowing in aggregate demand was occurring, which should reduce inflation over time.

“Indicators of household spending have recorded subdued outcomes over recent months, and demand for credit by both households and businesses has weakened,” he said.

Earlier rate rises, additional rises in market interest rates, tougher credit conditions for borrowers and ongoing financial market difficulty all acted to restrain demand, Mr Stevens said.

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In the short-term, the RBA expects inflation to remain relatively high but said it should decline over time.

“Should demand not slow as expected or should expectations of high ongoing inflation begin to affect wage and price setting, that outlook would need to be reviewed,” Mr Stevens said.

Published: 06-05-08

Rates on hold as demand slows
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