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Statement by the Governor, Mr Bernie Fraser: Monetary Policy

Date:15 October 1990.

■ ■ ■

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, to around 13 per cent.

This decision follows discussions at the October meeting of the Bank’s Board and consultations with the Treasurer.

This further reduction in interest rates is consistent with maintaining an environment conducive to lowering inflation over the medium term while avoiding an excessive slowdown in economic activity.

A range of price indicators, including the CPI, show that inflation has been coming down over the last 12 months. The removal of pressures in goods and labour markets, together with falling asset prices, should see further progress on the underlying inflation rate. On the other hand, the recent increase in oil prices will contribute to a once-and-for-all rise in the price level; we will all need to be vigilant to prevent this from feeding into the underlying inflation rate.

Domestic spending and activity have declined further and are likely to remain weak for some time yet. Retail trade has been flat, investment has fallen, and employment also is now falling. Import volumes are now about 10 per cent below their peak. Credit continues to grow at a moderate pace, as it has since the beginning of 1990.

This further reduction in cash rates is expected to flow through quickly and fully to banks’ indicator lending rates.

Source: Reserved Bank of Australia

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