this were to turn out to be the case, monetary policy would have the flexibility to respond provided the inflation outlook remained benign. conclusion to summarise, the challenge that we australians face is to make the best of the fundamental changes that are taking place in the global economy. as a country rich in natural resources, bis central bankers ’ speeches we are well placed to benefit from this change. but if we are to take advantage of this opportunity, the structure of the economy must continue to evolve. labour and capital will continue to shift to the resources sector. industries affected by the high exchange rate will need to find ways of moving up the valued - added chain. and parts of the service sector will need to continue their adjustment to the changes in household spending and borrowing. these adjustments are difficult, but if they are not allowed to occur, as a nation we will have given up the potential benefits that the changes in the world economy are making possible. public policy can help in the adjustment process by promoting flexibility in the economy and by reducing some of the costs of change for individuals and communities. it can also help manage some of the new risks arising from these global developments. monetary policy can help the adjustment by keeping inflation under control and maintaining stability in the overall economy. our judgement is that the current setting of monetary policy is consistent with this, with the board keeping the cash rate unchanged at 4. 25 per cent at its meeting yesterday. i would like to thank you very much for your time this morning, and i am happy to answer questions. bis central bankers ’ speeches

firm to firm. to date though, while there are obviously large effects on individual businesses and people, the various cross currents have balanced out reasonably well from a macroeconomic perspective : gdp growth is close to trend, inflation is consistent with the target, interest rates are around average and unemployment is low. these macroeconomic outcomes are much better than those being recorded in other advanced economies. however, the various cross currents are having an unsettling effect on parts of the community, with many people focusing on the costs of structural change. these costs are undoubtedly real and they are not borne evenly across the country. however, the benefits of structural change are also real and, over time, as we have seen in the past, these benefits do get spread widely across the population. if australia is to take advantage of the opportunities that lie ahead, the structure of the economy must continue to evolve and we need to ensure that our labour and capital are used where the returns are highest. implications for monetary policy i would now like to turn to some of the implications of the ongoing structural change for monetary policy. there are four closely related observations that i would like to make. the first is that structural change adds to the difficulty of assessing the balance between supply and demand in the economy. given the historically unusual nature of the forces affecting the economy, history provides only limited guidance as to the magnitude of their ultimate effects. this is one reason why the reserve bank is devoting considerable bis central bankers ’ speeches resources to understanding these forces, including by frequently talking to businesses at the forefront of this structural adjustment. the second observation is that the main role for monetary policy is to keep inflation low and stable. the current list of economic uncertainties is long enough without adding uncertainty about the general level of prices to the list. the task for monetary policy is to ensure stability in the overall economy so that difficult decisions at the firm and industry level are not further complicated by macroeconomic instability. in undertaking this task, the bank needs to understand the forces driving structural change, and we are working hard on this. but it is important to recognise that the rba can do little to affect these forces. as i said at last year ’ s forum, the emergence of asia as a major force in the global economy has shifted world relative prices and this underlies many of the changes that are occurring in the australian economy. this shift in relative prices is not something that monetary policy in australia can influence. it is driven by global developments and is causing adjustments