in relative prices is also occurring against the backdrop of ongoing stimulatory monetary policy around the world, including in asia. while in most countries, domestically sourced inflationary pressures remain subdued, there is an important global factor coming from the capacity constraints in commodity markets. at least for the time being, it would appear that the ability of the world to produce commodities is becoming a key constraint on non - inflationary growth for the global economy. as the governor said last week at the parliamentary hearing, managing these price pressures in commodity markets is shaping up as one of the major international issues of 2011. in asia, the high food prices, in particular, have meant that headline inflation rates have risen and there has been a lift in inflation expectations in some countries. if these inflationary pressures were to intensify, a stronger policy response than seen to date would be likely, increasing the risk of a subsequent sharp slowdown in the region. consumer restraint the second issue that i would like to talk about is the restraint in consumer spending and borrowing. as many retailers will attest, consumer spending has been subdued in recent times. you can clearly see this in the household saving ratio ( graph 8 ). while there are a whole host of measurement qualifications, the current data show that the saving ratio has increased from a see lowe ( 2010 ), “ the development of asia : risk and returns for australia ”, speech to natstats 2010 conference, sydney, 16 september and, lowe ( 2009 ) “ the growth of asia and some implications for australia ”, speech to citi australia inaugural australian investment conference, sydney, 19 october. bis central bankers ’ speeches little below zero in the first half of the 2000s to around 10 per cent in 2010. this increase has reversed the steady decline that took place over the previous two decades. graph 8 with the benefit of hindsight, a change in the trend looks to have started in the middle of 2000s, although, at the time, this was difficult to detect. over the decade to 2005, there was a large run - up in household debt and asset prices, and a decline in saving, as households adjusted to lower nominal interest rates and innovation in the financial system. it is plausible that this adjustment was largely completed by the mid 2000s and that since then, household spending patterns have returned to more traditional norms. over the past few years, this change has been reinforced by the global financial crisis which has led some households to rethink their spending and borrowing decisions,

the cash market and hence the implementation of domestic monetary policy, but also impair the functioning of domestic securities markets. moreover, it would not be feasible for the bank to conduct such large - scale asset purchases through its regular open - market operations. this would mean a large - scale purchase of domestic securities by the rba, but there simply is not a large enough pool of such assets that the reserve bank is willing to hold on an outright basis. hence, it would have meant a series of bilateral arrangements with adis along the lines of the open repo arrangements i discussed earlier, with self - securitised assets serving as the collateral. to implement monetary policy in such an environment, the price of accessing such an arrangement would have needed to be set so as not to create an incentive for adis to generate the required es balances through other means. this is no different to the clf. the purpose of establishing the clf was to ensure that es balances could continue to play their existing role in the bank ’ s operations. this means that adis seeking to raise their liquid asset holdings should, at the margin, prefer to use additional cgs, semis and / or an increased subscription to the clf for this purpose instead of es balances. our assessment is that a clf fee of 15 basis points should allow this to be the case. the pre - positioning of these securities, combined with the enhanced information requirements for asset - backed securities the bank announced last year, 10 will allow the bank to make a much more detailed credit assessment of the securities. consequently, the bank will be able to more precisely assess the value of these securities at any point in time and will be able to reduce its use of ratings agencies. to conclude, over the next 18 months, there will be some significant developments in the reserve bank ’ s balance sheet, resulting from some upcoming changes in the payments system and the commencement of the committed liquidity facility. both of these changes are being accommodated within the general framework for the implementation of monetary policy that has operated successfully in australia for some considerable time. the payments system changes will see some increase in the size of the reserve bank ’ s balance sheet, but no material change in either the risk or income derived from that balance sheet. the design of the clf is very much in keeping with the reserve bank ’ s ( and other central bank ’ s ) provision of liquidity to the financial system. it should not result in any material