, ‘ economic outlook ’, statement on monetary policy, august, pp 65 – 71. bis central bankers ’ speeches aggregate demand is expected to be broadly matched by lower growth of the economy ’ s productive capacity, which in turn follows from less growth in the labour force. while that is what we expect, there is considerable uncertainty about both the rate of population growth and its effects on spare capacity. an example might be helpful here. lower immigration may reflect a fall in the number of people coming to australia who have a relatively high propensity to participate in the labour force, such as new zealanders of prime working age. in that case, the implications for the economy ’ s productive capacity will be larger than if lower immigration was mostly due to fewer international students. it is not clear whether these two groups would have the same effect on demand : both need to feed, clothe and house themselves, but both have different incomes and different propensities to spend and save. another source of uncertainty affecting the outlook for supply is productivity growth. that is especially hard to forecast at any time. what signal can we take from recent developments? not much, is my sense. we know that the lower - than - expected population growth will ( by itself ) lead to a downward revision to employment growth. for the given growth in gdp that has been recorded of late, this implies that existing estimates of recent productivity growth are somewhat understated. in other words, they are likely to be revised a bit higher when the abs revise employment growth. however, recent measures of productivity growth tend to provide a very noisy signal of future productivity growth. so we haven ’ t changed our view on the outlook for productivity growth. we assume that it will be around its historical average. the role of wage growth what about relevance of the low growth of wages for the economic outlook? it is reasonable to be concerned that low wage growth might weigh on labour income thereby weakening the outlook for aggregate demand. but that is an incomplete description of a more complicated process. in particular, wages tend to lag the business cycle, not lead it. this makes sense for at least two reasons. first, many wages are determined by fixed - term agreements. so they take time to adjust to changing conditions in the labour market. second, even after growth of output picks up, it can take time to absorb spare capacity in the labour market, and hence for wage pressures to build. given this, the low wage growth of recent years is

order to allow the individual to compete with the global investors, maybe they should be able to borrow more money : i don ’ t really think that ’ s part of the answer. we tried that before here, and we need to keep a limit on the amount of debt that households take on. because the cost of excessive debt is so high, as we know in this country. going back, how we deal with improving affordable housing, all of these are frontline political issues, that is true across europe in different ways. for a fast - growing economy like ireland, where the workforce is growing, where there is so much pressure on housing, it ’ s obviously quite intense. but we don ’ t think tighter monetary policy from us is part of the answer. some would say that part of the answer would be to cap particularly retail interest rates charged by banks. do you see that as part of the answer? this is a long - running debate here. even though the ecb rate is quite low, when you look across europe, the mortgage lending rates in ireland are higher. the ecb has provided a legal opinion on the draft law, and it highlights, in line with the central bank of ireland analysis, that a policy that caps the interest rate runs the risk of having an unintended effect, which is that it will deter entry. the irish banking system is quite concentrated. many people would like to see more banks enter to compete and, through competition, lower the rates. if you have a legal approach, where there is a legal regulation capping the interest rate, then the incentive for foreign lenders to come in is less. we have this long - running debate about the contribution of the quite high default risk in ireland being built into those higher rates. i understand the intent : trying to make housing more affordable is a big issue. but personally, and in terms of the official advice of the ecb, we think capping interest rates is not the advisable way to go. you don ’ t even see a role for it, say, if you were to consider the housing situation to be an emergency scenario ; that it would be a temporary measure given to the central bank? well, again let me come back to the basics here. so much of the funding now in the irish property market is not coming from mortgages. you give the example of global institutional investors. what is driving the overall pricing of housing, also rental accommodation and so on, is not