between two types of situation : the first is where inflation has been comfortably averaging 2 point something per cent for some time and the economy is performing roughly in line with its potential so there is no obvious upward or downward pressure on the inflation rate. the second is where the starting point is either above or below the range we expect inflation to average. in the first case, where inflation is where we want it, monetary policy would be set to keep it there. the economy would be in a type of dynamic equilibrium and there would be no need for policy action. we then ask ourselves what are the circumstances under which we would wish to change monetary policy. would we do it if our forecast for inflation rose from 2½ % to 2¾ % or fell to 2¼ %? my answer is that we do not worry about small variations in inflation of that magnitude. to trigger a change in policy would require a forecast which had inflation going clearly above 3 % or below 2 % and likely to stay there for a while. our flexible inflation targeting framework does not aim for rigorous fine tuning, and requires a significant variation in the inflation forecast to trigger monetary policy action. this brings me to the second type of situation. this is where we start from a position where inflation is above or below our desired target range. in this case, where the initial situation is one of dynamic disequilibrium, the prescription is a little more complex. let us look at the situations defined by the two possible starting points. • the first is when inflation is above the target. in this situation, the inflation targeting framework would say to raise interest rates to a setting which would bring inflation back to the target. but once the higher rates had done their job, they should be gradually reduced to more normal levels. this is what happened in 1996. we did not wait until our forecast had inflation falling below 2 % before we started to ease. • the second is when inflation is below the target. in this case, the framework would first call for a setting of interest rates which would, over time, allow inflation to go back up to the target. once it is clear that such a setting had done its job, the framework calls for it to be replaced by one more likely to keep inflation at the target. the framework does not envisage the low interest rate setting being maintained until something goes wrong. it is this reasoning which lies behind the recent tightening of monetary policy and why we refer to it as pre - emptive.

philip lowe : remarks - launch of asic's national financial capability strategy 2018 remarks by mr philip lowe, governor of the reserve bank of australia, at the breakfast event to launch asic's national financial capability strategy 2018, canberra, 21 august 2018. * * * i am very pleased to be here to participate in the launch of the national financial capability strategy. all of us have to make choices about money every day. do i spend, or save? if i spend, what do i buy and how do i pay for it? if i save, where should i invest ; how much risk should i take? if i borrow, how much should i borrow and how quickly should i pay it back? in many ways these choices have become more complicated over time. we have more options than ever before – which is good – but these options can be bewildering. it is fair to say that many people find it hard to navigate their way through the myriad of possibilities out there. but we all do need to find a way to navigate through these choices. we all need to plan. for our own sake, and that of our families, we need to do this as well as we can. if we go in the wrong direction, it can have a major effect on our families and our welfare, perhaps for years. so it is really important we make well - informed financial decisions. and, we can all do with a bit of help to make sure we are going in the right direction. the strategy that is being launched today can provide that help by providing education, information and support for australians as they manage and make decisions about their money, and plan and save for the future. i would like to congratulate the government and asic for the work they have done in putting this strategy together. at the reserve bank of australia, we are also trying to play our part. as australia ’ s central bank, the rba has a very strong interest in people being in control of their financial lives and making well - informed choices. i say this from the perspective of the individual and the economy as a whole. at the individual level, each of us will be better placed in our lives if we make good financial choices. and at the collective level, the financial choices that the 25 million of us make about how much we spend, save and borrow can have a major bearing on the health of the overall economy. if enough of us make risky or bad choices, the whole