have seen price falls. developments in the sydney market remain concerning, but in the end we did not see these trends as overwhelming a case for a further easing in monetary policy that was made on more general grounds. i note that, on the regulatory front, apra has announced its supervisory approach to managing the potential risks posed by the rise in lending to investors in housing. this involves more intense scrutiny of investor loan portfolios growing at over 10 per cent per bis central bankers ’ speeches year, with the possibility, ultimately, of additional capital being required if apra deems it necessary. apra has also reiterated its expectations for other elements of lending standards such as interest rate buffers and floors. and asic has begun a review of interest - only lending in the context of consumer protection legislation. the bank welcomes these steps and will keep working with other regulators in these areas. the board is also very conscious of the possibility that monetary policy ’ s power to summon up additional growth in demand could, at these levels of interest rates, be less than it was in the past. a decade ago, when there was, it seems, an underlying latent desire among households to borrow and spend, it was perhaps easier for a reduction in interest rates to spark additional demand in the economy. today, such a channel may be less effective. nonetheless we do not think that monetary policy has reached the point where it has no ability at all to give additional support to demand. our judgement is that it still has some ability to assist the transition the economy is making, and we regarded it as appropriate to provide that support. the forecasts published last week in the statement on monetary policy assume a lower path for interest rates and a lower exchange rate than both earlier forecasts and the ones the board responded to at the february meeting. these are assumptions rather than forecasts or commitments to a course of action. it is worth noting that, despite concerns at various times about whether the exchange rate would adjust appropriately to our changing circumstances, it has been doing so over the period since we last met with the committee. against the us dollar it has fallen by around 17 per cent since our last hearing. the us dollar itself has been rising against all currencies, of course, so much of this movement is an american story rather than an australian one. against a basket of relevant currencies the australian dollar has fallen by less, but the decline is still about 11 per cent since august. further adjustment is probably going to

occur. one other development since our last meeting with the committee was the final report of the financial system inquiry. this was quite a wide - ranging report and there is now a further period of consultation. i simply note that the inquiry did not find major problems in the financial system, but did make recommendations about capital, to enhance the resilience of the banking system, and about loss - absorbency more broadly in the context of resolution. these will be mostly in the province of apra to consider. the inquiry also made some observations about payments matters, generally supporting the steps the payments system board has taken since its inception in 1998, and pointing to some areas where further steps may be appropriate. the payments system board will be considering these matters at its meeting next week. we now await your questions. bis central bankers ’ speeches