been made and where the progress has been too slow. i would now like to turn to today ’ s interest rate decision. as i am sure you are aware, this morning the board decided to reduce the cash rate by a quarter of a percentage point to 1 per cent. this follows a similar adjustment last month. this easing of monetary policy will support jobs growth across the country and provide greater confidence that inflation will be consistent with the medium - term target of 2 to 3 per cent. our assessment is that despite the australian economy having performed reasonably well over 2 / 4 bis central bankers'speeches recent years, there is still a fair degree of spare capacity in the economy. it is both possible and desirable to reduce that spare capacity. we should be able to achieve a lower rate of unemployment than we currently have and we should also be able to reduce underemployment. if, as a country, we can do this, we could expect a further lift in wages growth and stronger growth in household incomes. these would be good outcomes. as i hope you are aware, the reserve bank ’ s monetary policy framework is centred on the inflation target, but the ultimate objective of our policies is to promote the collective economic prosperity of the people of australia. in the board ’ s judgement, the easing of monetary policy last month and this month will help promote our collective welfare. at the same time, though, we recognise that the benefits are not evenly distributed across the community and that there are some downsides to monetary easing. partly for these reasons, over recent times i have been drawing attention to the fact that, as a nation, there are options other than monetary easing for putting us on a better path. one option is fiscal support, including through spending on infrastructure. this spending adds to demand in the economy and – provided the right projects are selected – it also adds to the country ’ s productive capacity. it is appropriate to be thinking about further investments in this area, especially with interest rates at a record low, the economy having spare capacity and some of our existing infrastructure struggling to cope with ongoing population growth. another option is structural policies that support firms expanding, investing, innovating and employing people. a strong, dynamic, competitive business sector generates jobs. it can help deliver the productivity growth that is the main source of sustainable increases in our wages and incomes. so, as a country, we need to keep focused on this. to repeat the point, it is important that we think about the

states and europe. we would have to say as well that supervision was found wanting. once the crisis hit, the complexity of operations across borders then greatly complicated efforts by policymakers to address the resulting problems. the financial system in this time zone, in contrast, has come through this episode in much better shape. thanks partly to the painful lessons of the asian crisis and other episodes, banks had generally stronger capital positions and higher lending standards, while supervisors had also done their job in the years prior to 2007. moreover, several banking systems in the region are among the earliest adopters of the new, tougher, basel standards. it goes without saying that we want this prudence to continue. but unlike the case in some other countries, the financial sector in the region is well placed to play its role in supporting the sustainable growth of economic activity and trade. it is noteworthy that as european banks sought to pull back from some activities in the region, including trade finance, banks from within the region have stepped up. so this is a point for confidence. this is not to say that there are no sources of vulnerability. in particular, concern has been expressed about the risks that may be growing in the “ shadow banking ” system in china. in recent years, an increasing share of financing in china has been provided by non - bank entities and through banks ’ off - balance sheet activities. in no small part, this growth in shadow banking reflects restrictions on both the quantity of bank credit, and controls on loan and deposit rates. such restrictions lead to demand for credit exceeding the formal banking sector ’ s ability to supply it, and also provide an incentive for savers to seek alternatives to low - yielding bank deposits. the chinese authorities have introduced a number of measures to mitigate the risks, and many types of shadow banking activities in china are now subject to some regulatory oversight. hopefully, this will lead to a stable outcome. but china ’ s experience is one that others have had at various times : as long as there are incentives to by - pass the formal banking sector, the shadow banking system may keep on growing together with the risks. more generally the risks associated with prolonged low interest rates globally are very much on the minds of policymakers right around the region, and will be for a while, i would think. turning to the second and third on the list of desirable attributes for finance, namely efficiency and integration, it may be that these will naturally go together. an efficient financial system intermediates savings at