have been falling ( graph 8 ). increased competition and changes in technology are driving down the prices of many of the things we buy. this is making for a tough environment for many in the retail industry, but for consumers, lower prices are good news. 7 / 12 bis central bankers'speeches a question we are grappling with here is how much further this process has to run. it is difficult to know the answer, but our sense is that the impact of greater competition on consumer prices still has some way to go as both retailers and wholesalers adjust their business models. so this is likely to be a constraining factor on inflation for a while yet. putting all this together, we expect inflation to pick up, but to do so only gradually ( graph 9 ). by the end of our two - year forecast period, inflation is expected to reach about 2 per cent in underlying terms, and a little higher in headline terms because of planned increases in tobacco excise. underpinning this expected lift in inflation is a gradual increase in wage growth in response to the tighter labour market. 8 / 12 bis central bankers'speeches high and rising household debt the third question we have focused on over recent times is the implications of the high and rising level of household debt. the growth in household debt has been outpacing the very low growth in household incomes for a few years now. as a result, the household debt - to - income ratio has risen, although if account is taken of the increased balances held in offset accounts the rise is less pronounced ( graph 10 ). the low level of interest rates means that even though debt levels are higher, the share of household income devoted to paying mortgage interest is lower than it has been for some time. perhaps reflecting this, as well as the recent decline in the unemployment rate, aggregate indicators of household financial stress remain quite low. the central issue here is how the high levels of debt affect the stability of the economy over the medium term. our concern has not been the stability of the banking system ; the banks are strong and they are well capitalised. rather, the concern has been that as the household sector takes on ever - more debt relative to its income, the risk of medium - term problems increases. this is especially so when this debt is taken on in an unusually low - interest rate environment. 9 / 12 bis central bankers'speeches it is difficult to be precise about exactly how much this risk has increased, but our judgement has

outer lying islands to provide this service. rural banking will be an excellent means for financial literacy outreach and education, as well as a strong medium for the delivery of credit for the development of sme activities and for promoting a savings culture. the cost of this access to finance can also be a factor. creditworthiness of enterprises is definitely an issue for financiers. so what can we do to help our smes be in a position to be eligible for loans? this is a tricky one to address and opens up the third issue, which may help in some way. training and education this is the issue of training and education or of financial literacy in general ; another key area. sme entrepreneurs need a lot of training, for example in basic book - keeping, marketing, business planning, feasibility assessments, even on how to fill in the many forms that may be necessary or provide the many, sometimes relatively complex, details needed in loan applications. again, here, the reserve bank has tried to do its part. we have discussed with commercial banks how we might work together to help small businesses, or to help the national centre in its training programmes. we will continue to talk with the national centre to see how the reserve bank can be of help. i think in moving towards a national strategy for growing sustainable msmes – which is the theme of today ’ s workshop – this will have to be an integral part : how can this basic training be provided? what other training would be needed at the different stages of the “ life ” of smes? and so forth. i think also that in terms of training and education, the scope needs to be much broader to include financial literacy where we need to develop an enterprise culture, and this needs to begin at an early age ; perhaps as part of curriculum in our schools. we need to incorporate entrepreneurship courses the earlier the better. another key to the success of smes is the mfis themselves – the third leg of this stool. while the commercial banks are fully established and regulated, other mfis are not. it seems to me that we need to focus equally on these mfis as we do the ultimate customers. are these mfis efficient? is their governance transparent and effective? do they have the capacity and the training? these are questions that i trust will be discussed in this forum today. remittances and then, lastly, another issue is that of remittances. personal remittances from