do not wish to re - open it. with those preliminaries, let us see what can be said about recent trends. the trade arithmetic is wellknown. it may therefore be of more interest to examine the financial counterparts - that is, to look at the changes in saving and investment behaviour. the table examines, from this perspective, the six episodes of current account widening over the past 25 years. cyclical changes in australia ’ s saving - investment position per cent of gdp ∆saving ∆investment of which dwellings ∆net ∆cad dec - 79 to dec - 81 – 0. 9 3. 9 0. 7 – 4. 8 – 4. 8 dec - 83 to jun - 86 – 1. 0 1. 9 0. 2 – 2. 9 – 3. 1 mar - 88 to mar - 90 0. 3 1. 5 0. 7 – 1. 2 – 3. 1 dec - 93 to mar - 95 – 0. 8 0. 7 0. 2 – 1. 5 – 3. 5 jun - 97 to mar - 99 – 1. 4 2. 9 0. 7 – 4. 3 – 4. 0 sep - 01 to sep - 04 – 1. 3 3. 0 1. 7 – 4. 3 – 4. 7 source : abs in the majority of episodes, the share of national income being saved declines. in every episode, investment increases. in each case, part of the rise in investment is dwelling investment. but what is striking is the prominence of dwelling investment in the latest episode. the size of the run - up is much larger than in the other five episodes. as of the middle of 2004, moreover, according to the national accounts, dwelling investment was almost 7 per cent of gdp, 3 higher even than the feverish pre - gst peak, and a full percentage point of gdp higher than at the other peaks in the past 40 years. graph 4 this figure excludes the transfer expenses associated with investment activities, which for dwellings grew to be about 1½ per cent of gdp by mid 2004 ( but has since fallen due to the decline in real estate turnover ). 5 / 7 click to view larger this was not obviously related to population growth, which was not unusually high in the recent period. the number of new dwellings constructed was not unusual compared with previous booms. what is new is that the quality and size of dwellings, both new dwellings and those being renovated, are higher than

even the existing limit is not used up. there is something out there we have to fix about the appetite for the corporate bond market. it ’ s not a restriction placed on the capital account front. as far as fii on government debt, yes certainly, we have expanded that quite rapidly in the last three or four years, but there is need for going a bit more cautiously, because as we ’ ve seen during the crisis, countries with large sovereign debt exposure to foreigners suffered destabilizing volatility. so we need to balance the concerns of stability with concerns of less expensive foreign flows. wsj : when you take over in 2008 did you make a conscious decision to take a more hand ’ s off approach when it comes to foreign exchange interventions? subbarao : that ’ s a judgment outsiders will have to make. by inclination, i believe that markets should be allowed to function and that we should minimize our intervention and that ’ s good for building the resilience of the economy. wsj : but it does help on the monetary policy side, as a flexible exchange rate makes your interest rate policy more potent? subbarao : certainly. that ’ s very fresh in my mind. i gave a speech last week on the impossible trinity, so to the extent you have a freely floating exchange rate you have greater, more independent monetary policy. wsj : are you satisfied with the intervention you undertook last year on the foreign exchange market? subbarao : yes. i would think so, especially on speculation. if you don ’ t intervene, the speculative forces could be self reinforcing which is that exporters would defer bringing their receipts in and importers would buy forwards. that ’ s a self - reinforcing feedback loop. to the extent that we curbed speculation and showed that determination, it certainly helped. wsj : so 54 rupees to the dollar was a level you weren ’ t comfortable? subbarao : i can ’ t really comment on a specific exchange rate. we were looking at the first derivative, not the stock figure, but the rate at which it was going. wsj : are these foreign exchange measures temporary, do they fit in you capital account liberalization trajectory? subbarao : some of them do fit in with our capital account thinking. some of the measures to curb speculation, they are permanent until removed, but that ’ s not saying much. we ’ d have to take