glenn stevens : economic conditions and prospects address by mr glenn stevens, deputy governor of the reserve bank of australia, to the australian business economists and the economic society of australia ( nsw branch ) annual forecasting conference dinner, sydney, 11 october 2006. * * * it is nice to be back at an abe - economic society function in a new capacity. thank you for the invitation. tonight i will take opportunity to make some brief remarks about the monetary policy framework, then go on to the current state of the economy and the associated issues for monetary policy. i would like to conclude briefly with a longer - term perspective. the monetary policy framework as you know, my predecessor on his appointment in 1996 reached a formal agreement with treasurer costello on the conduct of monetary policy. 1 this was updated in 2003 at the time of his reappointment. 2 these statements featured a numerical inflation target, to be achieved over the medium term, for consumer price inflation, and noted an appropriate degree of flexibility in the conduct of policy over the short term. they emphasised the independence of the reserve bank, as provided under legislation, in the conduct of monetary policy. they provided for accountability to parliament and provision of information to the public. and they recorded the commitment both of the governor and of the government to the arrangements. these arrangements have come to be well understood and widely accepted around the country, and around the world. preserving the purchasing power of money is the most important contribution that monetary policy can make to sustainable prosperity. having a medium - term numerical target for inflation – in our case, 2 - 3 per cent on average – operated by an independent central bank, remains for australia ( and many other countries ) the most straightforward way of giving practical effect to that overall goal. to date, moreover, the system has worked well. for a start, the target has been satisfactorily achieved. in 1995, a colleague 3 and i wrote about australia ’ s inflation target that : “ … if some years from now we can look back and observe that the average rate of inflation has a ‘ 2 ’ in front of the decimal place, that will be regarded as a success. ” from the vantage point of 2006, we can look back and see that the average inflation rate has indeed had a ‘ 2 ’ at the front. the number can be calculated a few different ways, but all give an answer of about 2½ per cent over the past decade. 4 inflation has been outside the 2 – 3 per cent

be encouraging as many payments as practicable to move onto that system. the next major frontier is to reduce the settlement risks of australian banks in their international transactions. this will be, if anything, more challenging than domestic rtgs has been, but some progress is being made internationally. i suspect that there is as much to be done to improve the efficiency of the australian payments system and the “ fairness ” of access arrangements to retail payments streams. the accc has recently found wanting the basis on which smaller players may negotiate participation in the eftpos system. i should emphasise that it will be the rba ’ s intention to adopt as light a regulatory touch as possible over the payments system. there has, after all, been a good deal of recent progress in reforming that system without the bank having explicit powers. we hope such progress will continue - - through the australian payments clearing association and other industry - based bodies. only where payments arrangements fall short of our efficiency and safety benchmarks - - and there are no serious attempts by the industry to rectify that position reasonably quickly - - will we embark on the path of prescriptive regulation. end piece it is a truism that change is always with us. but i suspect that banks face more than their fair share of it in coming years. i hope my remarks will be useful background for your speculation about the details of this change over the next couple of days.