, the board has been seeking to balance the benefits of stimulatory monetary policy with the medium - term risks associated with high and rising levels of household debt. the current low level of interest rates is helping the australian economy. it is supporting employment growth and a return of inflation to around its average level. encouragingly, growth in the number of australians with jobs has picked up over recent months and the unemployment rate has come down a bit. the investment outlook has also brightened. inflation has troughed and it is likely to increase gradually over the next couple of years. these are positive developments. even so, it will be some time before we are at what could be considered full employment in australia and before underlying inflation is at the mid - point of the medium - term target range. this means that stimulatory monetary policy continues to be appropriate. the board has been conscious that attempting to achieve faster progress on unemployment and inflation through yet lower interest rates would have added to the risks in household balance sheets. lower rates would have encouraged faster growth in household borrowing and added to the medium - term risks facing the economy. our judgement has been that it was not in the public 1 / 4 bis central bankers'speeches interest to encourage an already highly indebted household sector to borrow even more. more borrowing might have helped today, but it could come at a future cost. so the board has been prepared to be patient and has not sought to overly engineer or fine - tune things. in our view, the balance we have struck is appropriate and it is likely that the economy will pick up from here as the drag from declining mining investment comes to an end. our central scenario is for growth of around 3 per cent over the next couple of years and for the unemployment rate to move lower gradually. in striking the appropriate balance in our policy setting, we have paid close attention to trends in household borrowing, given the already high levels of debt. over the past four years, household borrowing has increased at an average rate of 6½ per cent, while household income has increased at an average rate of just 3½ per cent. given this, the rba has worked closely with apra to ensure that lending practices remain sound. rightly, apra has had a strong focus on loan serviceability calculations. in some cases, loans were being made where the borrower had only the slimmest of spare income. apra has also introduced restrictions on growth of investor loans and restrictions on interest - only lending

time this projection was made. that was not a bad “ forecast ”, actually : the outcome is likely to be about 2½ per cent. this is despite the fact that the people who made this estimate obviously could not have had any knowledge of many of the non - demographic forces that would be at work over the relevant years. one can't help but observe that, in common discussion about the economic outlook, we too often ignore the influence of demography. but it may be that demographic forces are a common factor behind some of the most important “ big force ” developments. it seems likely that the characteristics of the “ baby boom ” cohort – its relative size and different propensities from those of other generations – have affected saving and investment choices, housing markets, asset values, leverage and so on through time. further effects no doubt will occur ( not necessarily in the same direction ). 4 what then might be some of the “ big forces ” at work over the next decade? perhaps unwisely, i shall chance my arm at some ideas. in so doing, i am comforted by the very low likelihood that i shall have to return to a future abe forecasting conference to explain why these prognostications were wrong! it is not very controversial to suggest that china will grow more slowly on average than in the past decade, but it will still be a big deal given its overall size and the extent of transition required in its growth strategy. china's financial weight will be increasingly apparent in markets. those days, like in late august this year, when us and global markets are roiled by some event in china, will probably become more common. the growth transition towards services will have implications not just for the value of resource shipments from australia, but for the asian regional manufacturing chain. but china's demographics are not favourable. to be sure, the continuing process of urbanisation means that the labour available for manufacturing or services production may grow for a while. but, overall, china's total working - age population will be shrinking over the years ahead. contrast this with india, another large country, but with vastly different demographics. india's population of working age will exceed china's within a decade and continue to grow. 5 so india should become much more prominent in our conversation about the global economy and our own. are we intellectually prepared for that? the united states will still be a very large economy and, perhaps more important, still a leading source