inflation pressures. unemployment has been rising, and will probably rise a bit further yet ; growth in labour costs have slowed noticeably in response. indeed, growth of the wage price index is around the lowest in the 15 - year history of the measure. measures of unit labour cost growth are correspondingly quite low. so, absent continually rising profit margins on the part of businesses, we don ’ t see the conditions for persistently higher consumer price inflation, even though tradable goods prices are expected to rise due to the lower exchange rate. measures of inflation expectations remain wellanchored and are around or below their long - run averages. our view remains that the outlook for inflation, while a little higher than before, is still consistent with our medium - term target. trends in asset prices are an area to watch. in particular, we need to be alert to the possibility that the past year of strong rises in dwelling prices leads people to assume that this is the norm. were such an assumption to lead to increasing speculative activity, accompanied by a renewed increase in household leverage with all the associated risks to the housing market and the economy more generally, that would be unwelcome. this is a theme discussed in some detail in our latest financial stability review, released earlier bis central bankers ’ speeches today. we are watching this closely, and we remind people that house prices can go down as well as up. in fact there have been two episodes where prices fell for a year during the past decade. the australian prudential regulation authority will also be emphasising with lenders and their boards, as it has been for some time now, the need to maintain high lending standards. there is, of course, the full panoply of other “ risks ” that can be identified. as always, the exchange rate is a source of significant uncertainty. much of australia ’ s outlook also depends on developments overseas. further progress towards the full treatment of banking problems and the return to sustainable fiscal budgets in europe will be important. with greater certainty in the united states over their fiscal policies and the path of monetary policy, the risks there may now be more on the upside. on the other hand, if some event – like a geo - political shock – led to a wider retreat from risk taking, this could have a significant dampening impact on the global economy. china ’ s outlook is important for australia as, for that matter, it is for other countries. china is now the largest or second largest trade partner

to most significant economies. not only the way china manages the current financial issues, but its implementation of structural reforms, so as to maintain robust economic growth in the long run, will have an impact on all of us. our monetary policy settings have been unchanged since last august, at what by any standard is a very accommodative level. this is playing its part in supporting sustainable growth in demand, consistent with the inflation target. we have signalled that if the economy evolves in line with the present set of forecasts, a period of stability in interest rates could be expected. having said that, let me return to a more global perspective, to make the point that sustainable growth over the long run has to rely on more than just monetary policy. strong long - run growth won ’ t be achieved in any country simply by manipulating interest rates ( or, for that matter, exchange rates ). monetary policy ’ s main contribution over the long run is to provide a stable monetary standard. that is a necessary condition for strong growth but it is not a sufficient one. nor will fiscal expansion serve as more than a temporary boost to growth. indeed the limits to fiscal activism are surely all too clear in many countries now. other conditions need to be right for growth. these include ensuring the environments for competition, innovation and investment, including in human capital, are sound. in those areas, various other government policies must come to the fore. that is the spirit in which the countries of the g20 recently committed to coming up with measures that could raise the level of world gdp by 2 per cent above what it would otherwise have been, over a horizon of five years. this isn ’ t to be achieved by a program of cheap money or debt - financed spending. many of the needed measures are likely to be politically demanding for governments to introduce. but if signing up to the challenge helps to galvanise efforts for the sorts of reforms that need to be made, then it will have been a worthwhile initiative. thank you for your attention. bis central bankers ’ speeches