policy to lean against the build - up of financial imbalances, if the reserve bank believes this could prevent a sharper economic cycle in the future. ” the bank of canada ( 2012 ) makes it clear that these deliberations can imply that it takes longer for inflation to attain the target : “ [ a ] tighter monetary policy that keeps inflation below target longer than usual could help to prevent excessive borrowing and a broader buildup of financial imbalances. ” 25 in countries where the housing market collapsed in connection with the financial crisis, and where housing prices have already fallen heavily, the deliberations have of course been somewhat different. there, the monetary policy discussion has mainly concerned ways to stimulate the economy and get out of the deep recession. but the idea that monetary policy may need to be used in support of macroprudential policy and contribute to preventing new imbalances arising on financial markets is nevertheless a question that is climbing higher up the agenda in these countries, too, as the economy and the housing market recover. 26 a clear example is the united kingdom, where the most recent remit for the bank of england ’ s monetary policy committee ( mpc ) states that circumstances may arise in which the mpc one recent example is lagarde ( 2014 ) : “ but where macroprudential policies fall short, monetary policy will have a larger role than in the past to maintain financial stability. ” other examples include white ( 2009 ), oecd ( 2010 ), caruana ( 2010 ), borio ( 2011b ), imf ( 2013 ), bis ( 2013 ), bayoumi and habermeier ( 2014 ). see also mishkin ( 2011 ) and the committee on international economic policy reform ( 2011 ). it should be noted that the central banks in these countries have not necessarily made the assessment that there was motivation for leaning monetary policy against the wind in practice. the point is that they consider such deliberations as important to include in monetary policy as a question of principle. examples in the us federal reserve are hoenig ( 2010 ), bernanke ( 2011 ), kocherlakota ( 2013 ) and stein ( 2014 ). within the ecb it has been noted that the strategy of a so - called “ second pillar ” that focuses on developments in monetary aggregates implicitly contains an element of leaning against the wind. see ecb ( 2010 ) and stark ( 2010 ). bis central bankers ’ speeches

rising interest servicing costs, a period of consolidation is welcome. the corporate sector did this in the early 1990s and is now in excellent shape ; the household sector will be in a better position in the long run if it also consolidates its balance sheet. nevertheless, we are taking a great interest in the relationship between housing and household spending, as it has been and will probably continue to be an important influence on economic developments. one area where it has been influential has been in explaining the different economic performance of the different states. we have also recently undertaken a survey of a sample of households to study the extent to which they have engaged in mortgage equity withdrawal and to see how the funds were used. we will soon be reporting on the results of that survey. the third subject i would like to cover is inflation and inflation prospects. this is particularly important given that our monetary policy is based on inflation targeting. that is, we want to ensure that the rate of inflation averages somewhere between 2 and 3 percent. we aim for this – not because inflation is all we care about – but because the maintenance of low inflation is a necessary condition for having a long economic expansion in output and employment. over the past two years, inflation in australia has been restrained by the appreciation of the australian dollar which took place between mid 2001 and the beginning of 2004. however, there have been a number of influences which have pointed to a rise in inflation further ahead : • the fact that after a long expansion we were encountering some capacity constraints ; • the rising prices of oil and some other important industrial inputs ; and • the fact that the downward influence on prices from the exchange rate appreciation would eventually fade away. the likely extent of the upward pressure has been difficult to assess as the signals have varied quite a bit. when i was last before you in february, the signals were quite strong. we had received two quarters of large rises in producer prices at all stages of production and the increase in the cpi in the fourth quarter of 2004 had exceeded everyone's expectations. there was also some evidence that the slowdown in credit had run its course and was picking up again. shortly after we met last time, the bank raised the cash rate by 25 basis points. since that time we have had more reassuring news on inflation. there is also some evidence that the monetary policy tightening itself may have had a quicker effect than normal. i do not want to make too much of this point, but the saturation coverage of the event in the print