philip lowe : dinner remarks to a50 australian economic forum dinner remarks by mr philip lowe, governor of the reserve bank of australia, to the a50 australian economic forum, sydney, 9 february 2017. * * * i would like to offer you all a very warm welcome to sydney for the a50 forum. to those of you who have travelled to our shores from afar, thank you for visiting. i am confident that you will find your investment in time a worthwhile one. in just a short period, you will hear from the leaders in the worlds of politics, business, the policy institutions and the investment community. you will find an openness and transparency that is not always seen elsewhere around the world and you will experience a genuine desire to share perspectives. you also find a country that is prosperous and wealthy ; australians enjoy a standard of living that relatively few people around the world enjoy. you find a country that has grown consistently for some decades now, despite a pretty volatile global environment. australia ’ s year - ended growth rate has been in positive territory since 1991. you find a country that has a strong and stable banking system. we have deep and liquid financial markets. the public here question why banks are so profitable, not why they performed so badly during the global financial crisis. you find a country that is well placed to benefit from growth in asia, not only because of our natural resources base, but also because of stronger demand for our food and a wide range of services. you find a country with a growing and diverse population and one that has a high degree of social cohesion. our population has recently been growing at around 1½ per cent a year, and around 40 per cent of us were either born overseas or have one parent born overseas. this brings a dynamism that isn ’ t there in countries with stagnant and less diverse populations. you also find a country with strong public institutions and whose economy is resilient and flexible. we have a demonstrated capacity to address our problems and to adjust to the changing world that we live in. in the past decade, our flexibility has meant that we have been able to maintain economic stability through the biggest investment boom in the resources sector in more than a century, and the subsequent unwinding of that boom. you also find a country with positive interest rates and a conventional monetary policy framework. the central bank is independent, analytical and pragmatic. our inflation target is focused on medium - term outcomes. this approach means that

represents irrational mispricing of risk or is, by itself, a cause of concern. issuance has picked up, but it is not especially high. moreover, measures of corporate indebtedness are generally not elevated ( graph 13 ). this has been helped by some deleveraging among resource companies, which have been able to reduce the extent of their debt. 12 13 / 15 bis central bankers'speeches still, it is possible that we could see a noticeable pick - up in financial market volatility, a sharp repricing of assets and, as a result, a tightening in financial conditions, including higher spreads for corporate issuers. the recent experience in us equity markets has been a stark reminder of that possibility. while us equity markets reacted sharply, and other equity markets around the world responded ( though generally to a somewhat lesser extent ), the knock - on effect to other markets was modest. in particular, spreads on corporate debt were little changed. my sense is that this limited response of spreads reflected at least two features of the bout of equity market volatility. first, the sharp response of the us equity market was driven, at least in part, by some sizeable positions that had been taken on the back of an expectation that volatility in that market would remain low. second, the equity market turbulence was triggered by a reassessment of the outlook for us inflation and monetary policy. in particular, there was evidence of stronger wages growth and a prospect of rising inflation. it would be appropriate and welcome in that case to see a tightening in financial conditions. if that were to be sustained, it would naturally be accompanied by a reduction in the search for yield and some increase in spreads, which would tend to weigh on issuance. while there ’ s nothing that guarantees that the path of adjustment will be smooth and pain free, the forces that might push the us economy in that direction are not unwelcome in of themselves. and while other advanced economies are further from that point, including in australia, the expectation is that these same forces will come into play as spare capacity is gradually eaten into and inflation rises. thank you for your attention. i look forward to answering questions you might have. 14 / 15 bis central bankers'speeches 1 an important aspect of that is default risk, which i suspect is the thing many people have in mind when i mention risk. however, these spreads will also incorporate liquidity premia – government bonds tend to be quite