been receiving very low returns on interest - bearing assets for a decade now. on the other side of the ledger, periods of rising interest rates globally have, historically, exposed over - borrowing somewhere in the global system. investment strategies that looked sensible when interest rates were very low tend not to look so good when interest rates are higher. we can take some comfort from the major efforts over the past decade to improve the resilience of the global financial system. but at the same time, investors have increasingly been prepared to take more risk in the search for yield. many continue to expect a continuation of low rates of inflation and low interest rates, despite quite low unemployment rates in a number of countries. so this is an area that is worth watching. if higher interest rates are the result of a surprise increase in inflation, financial markets could be in for a difficult adjustment. a rise in global interest rates has no automatic implications for us here in australia. notwithstanding this, an increase in global interest rates would, over time, be expected to flow through to us, just as the lower interest rates have. our flexible exchange rate though gives us considerable independence regarding the timing as to when this might happen. higher levels of debt this brings me to a third plot line : that is, how we deal with the higher level of household debt and higher housing prices, especially in a world of more normal interest rates. it is likely that higher levels of household debt change household spending patterns. having increased their borrowing, households are less inclined to let consumption growth run ahead of 9 / 11 bis central bankers'speeches growth in incomes for too long. higher levels of debt also mean that household spending could be quite sensitive to increases in interest rates, something the reserve bank will be paying close attention to. to date, households have been coping reasonably well with the higher debt levels. the aggregate debt - to - income ratio has trended higher, but the ratio of interest payments to income is not particularly high, given the low level of interest rates ( graph 8 ). housing loan arrears remain low, although they have increased a little recently, especially here in western australia. over recent times, one issue that the reserve bank has focused on is the build - up of mediumterm risks from growth in household debt persistently outpacing that in household income. our concern has been that, in this environment, a small shock could turn into a more serious correction as households seek to repair their balance sheets. we have been working

shift in demand towards services and agricultural products within china and the asian region more broadly presents new opportunities for australian exporters. while our comparative advantages in service industries are perhaps less obvious than they are for mineral resources, the rise in the demand for services from a large and increasingly wealthier populace in our region will no doubt be to our benefit. the 2015 target of 10 million new urban employed workers was apparently exceeded in the first three quarters of the year. see gorajek a and d rees ( 2015 ), ‘ lower bulk commodity prices and their effect on economic activity ’, rba bulletin, september quarter. bis central bankers ’ speeches