process of credit risk management and liquidity at banks. banks played an important role in the process of spreading the crisis. as investors and providers of liquidity to companies – intermediaries in the sale of assets and companies investing in those assets, as well as by organizing the securitization of those assets. the role of good supervisory policies cannot be underestimated 6. first, the negative impact of a bubble burst will be less severe both for the economy as well as for financial institutions as such, provided that a banking system is well supervised, the level of exposure on this market is low, the system has quality assets and the capital stock is adequate to absorb the effects of the shock. second, if the bubble expansion reflects the expectations of extraordinary gains, the supervisory policy may substantially diminish the economic benefits from and the scale of speculation, e. g. by way of reducing the ltv ratio, restricting the loan term or introducing the requirement to provide own contribution for housing loans. third, the supervisory activities – as an instrument preventing asset bubble formation – have the advantage of affecting directly one selected group of entities which may play an important role in bubble formation. compared to interest rates, those measures have an effect of a conventional intelligent bomb, which is both selective and precise. supervisory activities pursued in order to prevent the creation of an asset bubble may be especially effective if bubbles occur, among others, as a result of the legislation the sector is regulated by. in poland, this principle is illustrated by regulations which restrict the investment policy of open pension funds and the impact of those regulations on the stock crockett a., marrying the micro - and macro - prudential dimensions of financial stability, bis speeches, september 2000. borio c., towards a macro - prudential framework for financial supervision and regulation?, cesifo economic studies, vol. 49, no. 2 / 2003, summer 2003. tsatsaronis k., systemic financial risk and macroprudential supervision, article presented at bocconi university centennial conference on risk and stability of financial system : what roles for regulators, management and market discipline, 2003. rybinski k., globalizacja w trzech odsłonach, difin, warszawa 2007. market. the currently effective legislation may contribute both to aggravating the supplydemand imbalance which supports the divergence of stock prices from the fundamentally reasonable levels and also towards the growth in the

workers who would like more hours. there are also structural factors at work, arising from technology and competition that we have discussed at previous hearings. the fourth and related issue is the outlook for inflation. the cpi inflation rate – at 2. 1 per cent – is higher than it was a couple of years ago, but still below the medium - term average. strong competition in retailing from new entrants is holding down the prices of many goods and low wage increases are holding down the prices of many services. rent inflation is also at a very low level. working in the other direction over the past year has been higher prices for electricity, fuel and tobacco. we are expecting inflation to move gradually higher over the next couple of years as the economy strengthens. we remain committed to achieving an average rate of inflation over time of between 2 and 3 per cent. in the short term, though, we are expecting the headline rate of inflation to dip a little in the september quarter. utility prices have declined recently in some cities and policy changes are likely to reduce the measured price of child care. there have also been some policy changes at the state government level that will reduce other measured prices. collectively, these changes will help with cost - of - living pressures and free up income to spend on other things. from this perspective, these changes are good news. so these are some of the main issues we have been working our way through. as you are aware, the reserve bank board has held the cash rate steady at 1½ per cent since august 2016. this setting of monetary policy is helping support economic growth, allowing for further progress to be made in reducing the unemployment rate and returning inflation towards the midpoint of the target range. we have not sought to fine - tune outcomes, but rather to be a source of stability and confidence as the economy moves along this path. for most of this year, i have emphasised three points in communication about monetary policy. the first is that things are moving in the right direction. we are making progress towards full employment and having inflation return to around the midpoint of the target range, and further progress is expected. the second point is that if we continue to make progress, you could expect the next move in interest rates to be up. with the central scenario being for the economy to continue on its recent track, it is more likely that the next move in interest rates will be an increase, not a decrease. the last increase in the cash rate was back in