and the ratings agencies seem to lie behind a perpetual question mark about australia and its financial institutions. it is unlikely we will ever be able to change definitively the views of all the sceptics. and – let us be clear – we should welcome the sceptics. perhaps some of their concerns are valid. the reserve bank gives a lot of thought to these issues ; we certainly do not dismiss them. we should always be wary of the conventional wisdom being too easily accepted. we should never, ever, assume that “ it couldn ’ t happen here ”. it is in that vein that i wish to pose a set of questions that are thrown up by these sceptical views. in particular : how much of the recent relatively good performance was due to luck? to what extent did we improve our luck by sensible policies, across a range of economic and financial fronts? are there signs of any of the things going wrong that people typically worry about? bis central bankers ’ speeches and if there are, or were to be, such signs, could we do anything about it? to begin, i shall re - state some key metrics. graph 1 graph 2 bis central bankers ’ speeches graph 3 these charts really require no exposition ( graph 1, 2 and 3 ). the message is clear. it is fair to conclude that, given the circumstances internationally, the australian economy has exhibited more than acceptable performance over recent years. this conclusion would stand whether comparisons were made either against most other countries, or against our own historical experience. why was it that australia did not have a deep downturn in 2009 when so many other countries did? and why was it that we have returned to reasonable growth, when others have struggled to do so? this question has been answered on numerous occasions. there are several elements. first, the australian banking system went into the crisis in reasonable shape. to be sure, there were some poor lending decisions during the preceding period of easy credit and there was, in hindsight, too much reliance on wholesale funding. but among major institutions, credit quality issues have turned out to be manageable. asset quality was not as good among some of the regional banks, and even less so among some foreign banks operating in australia, but the problems have not been insurmountable. some observers might counter that the banks received assistance with wholesale fund raising in the form of the government guarantee. but the banks paid for that, and it was an appropriate response at a time of massive market di

inflation to increase a bit more quickly, boosted by increases in oil and tobacco prices. we continue to pay close attention to the housing market and to household balance sheets. the picture varies widely across the country. prices for houses in sydney and melbourne are rising strongly, but apartment prices in some cities, including perth and brisbane have fallen. the population is growing strongly, but there is a large number of additional dwellings to come onto the overall market this year. growth in rents is weak, but vacancy rates in most markets are not unusually high. and investor demand looks to have strengthened in the closing months of 2016. so it is a complex picture. one reason for trying to understand this complex picture is that the level of household debt is relatively high. overall, households are coping reasonably well with this. but there are clearly risks. so it is a positive development that over the past couple of years, banks have tightened their lending standards in some areas. this tightening was partly prompted by the supervisory measures put in place by the prudential regulator, apra, and the reserve bank and apra continue to work closely together monitoring developments. 3 / 4 bis central bankers'speeches another issue that we are paying close attention to is developments in the labour market. employment growth slowed over 2016 and the growth that did take place was almost entirely in part - time employment. as is the case with the housing market, conditions vary across the country. looking forward, the number of job vacancies and job ads suggest that some strengthening in employment growth might be in prospect. our central forecast though is for the unemployment rate to remain close to its current level for some time to come. in summary then, the bank ’ s central scenario is for some pick - up in economic growth and for inflation to move gradually higher. as always, though, there are risks around that outlook. as our record demonstrates, our economy does have a degree of resilience and flexibility that has allowed us to maintain stability during a pretty difficult time in the global economy. there is no reason that this can ’ t continue. but we do need to continue to build that resilience, while we take advantage of the considerable advantages that we have as a nation. thank you. welcome again. i hope you enjoy your time in australia. 4 / 4 bis central bankers'speeches