to an economy ’ s well being because it is so intimately connected to every other sector of the economy through its role of providing credit. when large - scale failures occur among financial institutions, the supply of credit dries up and this quickly leads to cutbacks in other industries. additionally, the finance sector is the part of the economy that is most susceptible to crises of public confidence. a problem that hits one part of the finance sector can quickly spread to the rest of the sector, and then to the economy more widely. once it becomes widespread, it is termed a systemic financial crisis to distinguish it from one that is confined to a single institution or a very narrow part of the financial system. another way of approaching financial stability is to look at it from the perspective of developments in the overall economy. there is widespread recognition in the community that the normal growth path of an economy is not smooth. we have all lived through a number of business cycles, and although we wish that the cycle could be abolished, most of us are resigned to the fact that expansions cannot go on forever, and they will be followed by a recession. provided that these recessions are not very frequent and not very deep, public confidence in the legitimacy of the economic system remains intact. the problem with a serious bout of financial instability or a systemic crisis – inevitably involving a boom in asset prices, followed by a bust – is that it makes the recession much deeper and longer, and can even turn it into a depression. the best known example of this is the depression in the united states in the 1930s, the severity of which is now widely attributed by modern scholars to the collapse of the us banking system. 1 australia had a similar experience in the depression of the 1890s, and some more recent examples, which i will cover later, contained some of the same elements, although fortunately on a smaller scale. over the past three years, we have witnessed the asian economic crisis, the depth of which is largely due to the collapse of financial systems in these countries. although it is not well known in australia, the nordic countries ( sweden, norway and finland ) went through a similar experience a decade ago. 2 in short, it is possible to have a normal business cycle where financial stability remains intact. these are usually quite mild cycles. it is also possible to have cycles where financial instability plays a large role. these are usually very severe. thus, there are very good reasons for a country to do what it can to avoid financial instability.

per cent in 2022. it is certainly possible that the economy will do better than our central scenario. this scenario does not envisage a vaccine being widely available to most australians until late next year at the earliest. it also assumes that significant restrictions on international travel are still in place at the end of 2021. recent medical breakthroughs give us some hope that things will work out better than this. if so, confidence would lift and there would be a further easing of restrictions. the result would be an upside surprise to growth and jobs, especially given the significant policy stimulus that is already in place, the generally strong balance sheets and the substantial government incentives for businesses to employ people and invest. but it is also possible that things could go the other way. europe provides a salutary reminder of this. it was just 3 months ago that many commentators were remarking on the robust bounceback in europe. now, the european economy is expected to contract again in the december 1 / 4 bis central bankers'speeches quarter as countries struggle to contain the virus. similarly, in the united states the outlook is clouded by the sharp increase in case numbers there. fortunately, here in australia, we look to be on a different path, but there is no guarantee that we will remain so. this inevitably means that there is still a high degree of uncertainty about the outlook. what has become clearer, though, as time has passed is that australia is likely to experience a run of years with unemployment too high and wage increases and inflation too low, leaving us short of our goals. in the current environment, addressing the high rate of unemployment is a priority for the reserve bank board. we are intent on doing what we can, with the tools that we have, to help here. this brings me to our recent monetary policy decisions. recent monetary policy measures since the previous hearing in august, significant policy announcements were made following the board ’ s meetings in september, october and november. we made no further changes at our meeting yesterday. in september, the board increased the size of the term funding facility and allowed authorised deposit - taking institutions ( adis ) more time to draw on this facility. institutions can now access funds up to the equivalent of 5 per cent of their total loans, with additional funds available if an adi increases its lending to businesses, especially small and medium - sized businesses. in october, we changed the nature of our forward guidance about the cash rate. the focus is now on actual outcomes for inflation and unemployment