(1888PressRelease)
November 17, 2008 - London, The targets for 2009 and 2010 are 1.75% and 2.5%, respectively. The Bank hopes that the core inflation, currently at 17-year high of 4.7% to settle at around 3.5% by 2009 and 3% by the end of 2010. It aims to achieve its target of 2 to 3% only in 2011 instead of 2010 as expected earlier.
"The board will be seeking to strike the appropriate balance between avoiding an unduly sharp weakening in demand and the need for inflation to fall back to the target over a reasonable period," Glenn Stevens, the RBA governor said in a statement.
With the global economy slowing, demand for commodities and the prices have fallen sharply. "A more rapid unwinding of the resources boom than has been assumed would have significant negative effects throughout the economy, resulting in softer growth in domestic incomes and spending," he said. “It is clear that Australia's terms of trade have now peaked, and movements in the terms of trade are likely to subtract noticeably from national income growth over the year ahead," Stevens stated.
Falling commodity demand may lead to resource companies scaling back their investment plans in 2009. Smaller mining firms in particular are likely to cut back expansion plans leading to sluggish economic activity in other sectors, the central bank said.
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