market failed. these lines were spread across banks in a range of countries, so problems experienced by a conduit vehicle in one country affected banks in many countries. when investor attitudes to credit risk changed abruptly in early august, these links quickly spread the problems worldwide. asset - backed commercial paper markets came to a virtual standstill, forcing the bulk of these conduit vehicles to turn to the lines of credit they had negotiated with banks. this in turn meant that banks in a wide range of countries found themselves under increased funding pressure in order to meet commitments on credit lines. the effects on markets across countries were very similar : overnight money market rates rose above the level targeted by central banks. for example, while the us fed is currently targeting 5. 25 per cent, the actual rate in the market rose to 6 per cent on 9 august ( graph 3 ). graph 3 in libor and swap markets, which are further away from the direct influence of central banks because they are more internationally focussed and have a greater diversity of participants, margins widened relative to cash rates ( graph 4 ). graph 4 yields on securities issued by banks, such as short - term bankers acceptances, rose noticeably. in the us they were up by 0. 25 percentage points for terms of 90 days ( graph 5 ). graph 5 yields on asset - backed commercial paper, which as noted had been at the same level as the fed funds rate for much of the past year, rose even more sharply, by about 60 basis points ( graph 6 ). more importantly, activity in this market dried up sharply, the effect being that for a time funding was not available at any price. graph 6 yields on us treasury bills fell by almost 2 percentage points, to 3. 25 per cent, as investors scrambled into secure and liquid investments ( graph 7 ). graph 7 there were also spillovers to other markets, including sharp falls in share prices, particularly for financial stocks, and some significant re - adjustment of exchange rates ( graph 8 ). graph 8 these were all symptoms of rising risk aversion. central banks responded to this by sharply increasing the amount of funds supplied to their banks in the money market. among the developed economies, the european central bank, the us fed, the bank of japan, the bank of canada, the swiss national bank, the norges bank, the reserve bank of new zealand, as well as ourselves here in australia, all did so to varying degrees. some also took other measures

growing developed economies. we have benefited too from earlier reforms. among other things, this has left us with more flexible and competitive product and labour markets than we had in the past and helped us to get closer to the technological frontier. however, other countries will continue to pursue reforms and we can ’ t rest on our laurels. the bank ’ s central forecast for economic activity is for growth to gradually pick up over the course of the next couple of years. monetary policy has been and will continue to play its part in this regard. the depreciation of the exchange rate seen to date is helpful. and we shouldn ’ t forget that there are other sources of adjustment, including the pick - up in productivity growth over recent years. however, as we ’ ve emphasised regularly, forecasting is difficult, there are many uncertainties and better growth is not guaranteed. it is also difficult to know exactly where growth will occur. the very low level of interest rates suggests that the housing market is likely to remain strong. we will probably see a continuation of trends such as the growing importance of the services sector in our economy, which is relatively intensive in terms of employment. resource production and exports are less employment intensive, but the significant investment in that sector will continue to bear fruit for a long time. finally, a lower exchange rate will provide support for demand for the output of the wide range of firms operating in the tradable sector. see downes p, k hanslow and p tulip ( 2014 ), “ the effect of the mining boom on the australian economy ”, rba research discussion paper 2014 – 08. for a discussion of tourism exports, see dobson c and k hooper ( forthcoming ), “ insights from the australian tourism industry ”, rba bulletin, march. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches