philip lowe : monetary policy framework, recent economic developments and reserve bank of australia ’ s major projects opening statement by mr philip lowe, deputy governor of the reserve bank of australia, to the house of representatives standing committee on economics, sydney, 22 september 2016. * * * chair and members of the committee these hearings have become a significant part of our calendar. they are an important way through which the reserve bank is accountable to the public. i, myself, have been attending these hearings for more than a decade in various roles. i look forward now, in my new capacity as governor, to continuing the tradition of productive engagement between the committee and the reserve bank. you can be assured that i will do my best to answer your questions constructively and i look forward to regular hearings over coming years. in my opening remarks, i would like to cover three sets of issues. the first is the monetary policy framework. the second is recent economic developments in australia and elsewhere. and the third is the major projects that the reserve bank is currently undertaking. the monetary policy framework earlier this week, the treasurer and i released an updated statement on the conduct of monetary policy. these statements – the first of which was released in 1996 – record the common understanding between the reserve bank and the government on key aspects of australia ’ s monetary and central banking policy framework. they also set out agreed arrangements that promote the transparency and accountability of the bank. over recent times, there has been quite a lot of public commentary in australia and elsewhere about monetary policy frameworks. as you would expect, we are always studying the various arguments and have followed the recent debate carefully. our view is that a flexible medium - term inflation target remains the right monetary policy framework for australia. this was reaffirmed in the new statement on the conduct of monetary policy, which has also been endorsed by the reserve bank board. the goal remains for cpi inflation to average between 2 and 3 per cent over time. the current framework was introduced in the early 1990s and has served australia well. it provides the community with a reasonable degree of certainty about how the average level of prices is likely to change over the medium term. this helps people when making decisions about their savings and investments. low and stable inflation remains an important precondition for strong and sustainable growth in employment and incomes. it is worth emphasising that ever since the adoption of the current framework, the reserve bank has been a proponent of what is known as flexible inflation targeting. we have not seen our

, either through use of its own balance sheet directly or through risk - sharing arrangements with the private sector. over recent times, we have seen a number of innovative public - private partnerships that have helped build important pieces of infrastructure in australia, although some of these have had problems. more broadly, i suspect that one reason that the public sector has been a bit reluctant to play an even larger role is an aversion to public debt. in many important respects, this aversion to public debt has served australia very well, but it has also limited the appetite to borrow to build public infrastructure. looking forward, we need to find a sustainable way in which to finance our infrastructure needs. regardless of whether it is the private or public sector that does the financing, it is likely to be easier if we have mechanisms that generate a flow of revenue from the infrastructure. one obvious option is user charging that promotes the public good. not only does this provide a revenue source to pay for the infrastructure over time, but it can help ensure that the infrastructure is used efficiently. another option is the use of levies and other mechanisms to generate revenue from those who benefit most from the infrastructure. both of these options face obvious political difficulties – few of us like paying tolls or giving up part of a financial benefit that a piece of infrastructure might give us. so, i do not want to underestimate the challenge. but as a society, we have a lot riding on finding a way to pay for the infrastructure that we need to boost our productivity and improve our living standards. hopefully, the work currently being undertaken by the productivity commission will point us in the right direction. and, in an international context, infrastructure financing will be one of australia ’ s priorities when we chair the g20 next year. the third potential challenge is that of capacity constraints. not only do we need to identify the best projects and find a way of financing them, but we also need to have the skilled workers to undertake them. over recent times, private business investment has been at a record high level as a share of gdp because of the resources boom. at times, this has created pressures in parts of the labour market, including for workers with engineering and specialist building skills. this has meant that we simply have not had the capacity to do much more investment in infrastructure. however, over the next few years, resources investment is bis central bankers ’ speeches expected to decline significantly as we move from the investment to the export phase of the boom