Governor Glenn Stevens said at today’s board meeting the global economy was expanding at a moderate pace with conditions in Asia softening, US growth continuing and Europe in recovery.

“The Board again judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate,” Stevens said.

“Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand.

“The board will continue to assess the outlook, and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target.”

Stevens said key commodity prices were much lower than a year ago, reflecting increased supply, including from Australia, as well as weaker demand and terms of trade were falling.

“The Federal Reserve is expected to start increasing its policy rate over the period ahead, but some other major central banks are continuing to ease monetary policy.

“Volatility in financial markets has abated somewhat for the moment.

“While credit costs for some emerging market countries remain higher than a year ago, global financial conditions overall remain very accommodative.”

He said, in Australia, available information suggested moderate expansion in the economy continued in the face of a large decline in capital spending in the mining sector.

He added, although GDP growth had been below longer-term averages for some time, business surveys suggested a gradual improvement in conditions in non-mining sectors over the past year through stronger growth in employment and a steady unemployment rate.

“Inflation is low and should remain so, with the economy likely to have a degree of spare capacity for some time yet.

“Inflation is forecast to be consistent with the target over the next one to two years.

“In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending.

“While the recent changes to some lending rates for housing will reduce this support slightly, overall conditions are still quite accommodative.

“Credit growth has increased a little over recent months, with credit provided by intermediaries to businesses picking up.

“Growth in lending to investors in the housing market has eased. Supervisory measures are helping to contain risks that may arise from the housing market.”