the neutral global real interest rate. during the financial crisis, the neutral global rate fell and this has had an important influence on the setting of interest rates in all countries, including here in australia. if we had not lowered our interest rates as global rates fell, the australian economy would have grown by less and inflation would have been even lower than it turned out to be. the fact that there is a common element in interest rates, however, does not mean that interest rates need to move in lock - step with one another. countries with a floating exchange rate, like australia, still retain considerable flexibility to set interest rates based on their domestic considerations. we did not lower our interest rates to the extraordinarily low levels seen elsewhere after the financial crisis. our circumstances were different : we didn ’ t have a meltdown in the financial system and we experienced a very large cycle in commodity prices and mining investment. just as we did not move in lock - step on the way down, we don ’ t need to do so in the other direction. it ’ s understandable that some other central banks are raising rates. they lowered their rates by more than us and, in a number of countries, the unemployment rate is now below conventional estimates of full employment at a time when above - trend growth is expected. our circumstances are a little different. we are still some way from what could be considered full employment and our central scenario for inflation is for it to remain below the midpoint of the medium - term target range for the next couple of years. we expect, though, to make further progress in reducing unemployment and having inflation return to the midpoint of the target range. if we do make that progress, at some point it will be appropriate for interest rates in australia to also start moving up. so, given recent developments in australia and overseas, it is likely that the next move in interest rates in australia will be up, not down. if this is how things play out, the likely timing will depend upon the extent and pace of the progress that we make. as i have discussed, while we do expect steady progress, that progress is likely to be only gradual. given this, the reserve bank board does not see a strong case for a near - term adjustment in monetary policy. it will of course keep that judgement under review at future meetings. i hope that these remarks this evening have helped you understand the australian economy, our opportunities and some of the challenges we face. i look forward to

our location was seen as a liability – we were simply too far from the major engines of global growth. today, though, our location is seen as an asset. we live in the most dynamic region of the global economy and we have capitalised on this with strong trade and personal links with asia. over recent times, we have benefited significantly from these links. the most obvious example is the very strong growth in exports of our resources. but increasingly, it is also being seen in the growth of exports of high - quality services, food and manufactured goods to asia. naturally enough, after 26 years of economic expansion people wonder what the future holds. this is an issue that often comes up in discussions with overseas investors. so i would like to use the opportunity of this dinner to address three related questions that we are frequently asked. these questions are : 1 / 5 bis central bankers'speeches what are the next few years likely to hold for the australian economy? what are the challenges facing the australian economy? as other central banks reduce monetary accommodation won ’ t the rba have to, too? the next few years for a while now we have been expecting the australian economy to grow more strongly in 2018 and 2019 than it did, on average, over recent years. there are a number of reasons for this. we are all but through the decline in mining investment to more normal levels, there is a large pipeline of urban infrastructure work to be done, the global economy is experiencing a solid upswing, commodity prices are up and financial conditions remain accommodative. all this is helping. the rba will be releasing our latest economic forecasts tomorrow in the statement on monetary policy. these forecasts will be largely unchanged from the previous set of forecasts. the rba ’ s central scenario remains for the australian economy to grow at an average rate of a bit above 3 per cent over the next couple of years. this outlook has not been affected by the volatility in the stock market over recent days. indeed, it is worth keeping in mind that the catalyst for this volatility was a reassessment in financial markets of the implications of strong growth for inflation in the united states. for some time, many investors had been working under the assumptions that unusually low inflation and unusually low volatility in asset prices would persist, even with above - trend growth at a time of low unemployment. a reassessment of these assumptions now appears to be taking place against the backdrop of