has adopted a risk management framework which indicates the level of equity the rbi needs, given the risks it faces. the dividend policy of the rbi then becomes a technical matter of how much residual surplus is available each year after bolstering equity. frameworks thus reduce the space for differences. the rbi ’ s role in macroeconomic stability is, however, still fuzzy. while rbi clearly has responsibility for the safety and soundness of credit institutions and the stability of the external account, there are some areas that are hazier. for example, with an inflation focused framework, the rbi ’ s ability to be accommodative depends on fiscal prudence from the center and states. how much should the rbi warn on fiscal profligacy, including the building up of contingent liabilities, and when should such warning be seen as interfering in the legitimate decisions of the elected representatives of the people? this is an area where clarity would be useful. strengthen oversight the freedom the rbi has to take operational decisions such as the fcnr ( b ) swap arrangement, albeit invariably in consultation with the finance ministry, is important. however, there are always government entities that are seeking oversight over various aspects of the rbi ’ s activities. multiple layers of scrutiny, especially by entities that do not have the technical understanding, will only hamper decision making. instead, the government - appointed rbi board, which includes ex - officio government officials as well as government appointees, should continue to play its key oversight role. in this regard, all important rbi decisions including budgets, licenses, regulation, and supervision are now either approved by the board or one of its sub - committees. vacancies in the rbi board, which have remained unfilled for many months now, should be filled quickly so that the full expertise and oversight of the board can be utilized. it is also important that parliament understand what the central bank is doing. the governor and deputy governors interact regularly with various parliamentary committees, but we have also initiated a six - monthly interaction with the parliamentary standing committee on finance, where the governor reports on the activities of the bank, and the committee offers its views and concerns. rank of rbi governor there is a reason why central bank governors sit at the table along with the finance ministers in g - 20 meetings. it is that the central bank governor, unlike other regulators or government secretaries, has command over significant policy levers and has to occasionally disagree with the most powerful people in the country. it is dangerous to

ric battellino : an update on the economy and financial developments address by mr ric battellino, deputy governor of the reserve bank of australia, to the urban development institute of australia, national congress 2009, brisbane, 31 march 2009. * * * introduction the past six months have certainly proved that we live in a globalised world. last september, the us investment bank, lehman brothers, collapsed and several other major us financial institutions came under immense stress. these events transformed what was a difficult but manageable situation in global markets into a full - blown financial crisis. the consequences for the global economy have been severe. up until these events, most forecasters had been predicting that the major economies would have a relatively mild slowdown in 2009, and that asia would be largely unaffected. those predictions have since been replaced by forecasts of a major global downturn, with all significant countries affected. australia entered this difficult period in much better shape than many other countries. disciplined monetary and fiscal policies in earlier years, sound regulation and a prudent approach to lending by our banks meant that the country was largely free of major problems. it is not surprising therefore that, so far, we have weathered this global downturn better than most. we have had more scope than others to move policies in the expansionary direction and our banks, being largely free of problem assets, are in a position to keep supplying credit to the economy. having said that, no amount of good economic management can totally shield us from what is happening in the global economy. in my talk today i would like to review how the global economy is evolving ; update you on how we are seeing the domestic economy ; and say a few words about household sector finances and the housing market. the global economy we all know by now that the global economy is going through a recession. in itself, this is not unusual ; the world economy has tended to experience a downturn every 7 - 10 years. the current global downturn is, however, more severe than we have experienced for a long time. this is because in some important countries a banking sector crisis has been overlaid on the regular economic cycle. this has added to the severity of the downturn because : • it has undermined the confidence of the community ; and • it has led to a sharp slowdown in the availability of credit. this cycle is also highly synchronised, with every significant country in the world affected. household and business confidence collapsed simultaneously in every country late