and electronic media must have had some dampening effect on expectations, as some surveys have suggested. it would not be surprising if the household sector had become more sensitive to news about interest rates, given the increased debt and debt servicing loads that it is now carrying. to cut a long story short, the next set of producer and consumer price inflation data that we received was more reassuring. true, it was only one quarter's information and that was not enough to change our numerical forecast of inflation, but it did lead us to conclude in our may statement on monetary policy that there was no longer an upward risk to our inflation forecast. the subsequent set of data confirmed a similar picture. with two quarterly sets of more reassuring price data now behind us, we were able in our recently released august statement on monetary policy to conclude that the cpi increase will peak at 3 per cent per annum in the second half of next year. as was widely noticed, we also refrained from making the point we have been making for the past year or so about it'being unlikely that there would be no further rises in the course of the expansion '. that does not mean that further rises could not happen ; it only means that in our present estimation there is no longer a more than 50 per cent possibility of it happening. this is a pretty comfortable position in which to be. we are not expecting to change monetary policy in the near term, and when we look further into the future we no longer see a clear probability of it moving in one direction rather than the other. importantly, this is also the collective view of the market, as shown by the yield curve and by economists'forecasts. of course, individuals do not all share this view, but on average that is the collective forecast. i do not intend to say any more about the economy or monetary policy at this stage, but, of course, am happy to answer any questions that you have on these subjects. i am also happy to answer any questions on the other important area of the bank's responsibilities, namely financial system stability. within that general area, the subject that has attracted the most recent attention has been the regulation of the retail payments system by the bank's payments system board. i know that committee members have met with the various industry participants, including members of the bank's payments policy department, to discuss the main issues, and, of course, i would be happy to address any questions members have on that subject.

focused on the us current account deficit as a source of risk to the world economy. it has been argued that the united states might encounter difficulty financing its deficit and that this would put downward pressure on the us dollar and upward pressure on world interest rates. in fact, the us current account deficit has been financed relatively easily, and the us dollar has risen over the past year. more importantly, long - term real interest rates around the world have stayed exceptionally low, which indicates a more - than - adequate supply of world savings, rather than a shortage. although china has been cited as a third source of risk to the global expansion, it continues to power ahead, and the recent changes to its exchange rate regime, although small, will improve its prospects at the margin. the most reasonable assumption is that the current world expansion, which has been going for almost 3½ years, will continue for a good while yet. most private forecasts for global economic growth for the rest of this year and the next show above - average rates, although not as strong as in 2004. the second subject i would like to say a few words about is the interaction between developments in the housing market and household spending and saving. recent evidence from several countries, including australia, shows that during periods where house prices are rising rapidly, households tend to react to this by increasing their consumption expenditure faster than their income. they can do this by either reducing discretionary savings, or by borrowing against the equity in their house to finance non - housing expenditure, a process referred to as'housing equity withdrawal '. this process occurred in australia, particularly in 2002 and 2003. over the past eighteen months, during which australian house prices on average have not risen, this process seems to have stopped, and so consumption and borrowing have slowed noticeably. in the eighteen months to the december quarter of 2003, real retail trade rose by 10 per cent, whereas in the most recent eighteen months it has risen by 4½ per cent. these developments have not been a concern to us because : • the pace of growth in domestic demand had been clearly unsustainable, averaging 6 per cent per annum in 2002 and 2003. this needed to be brought back to a more sustainable pace, and this necessarily involved some slowing in consumption. • other parts of the economy are still showing good growth, particularly employment and investment. the external sector is also exerting an expansionary influence through higher demand for exports and higher export prices. • after periods of rapid borrowing and