of the world. bis central bankers ’ speeches there was a genuine fear at various times that the currency might simply collapse to some ludicrously low value. with the benefit of that most powerful of tools, hindsight, one can observe that the currency had by the mid 1980s adjusted to a lower mean value, around which it fluctuated for nearly 20 years. one can further note that those trends had some association with developments in australia ’ s terms of trade ( graph 2 ). from this vantage point, the market might be argued, on the whole, to have moved the exchange rate to about the right place. and despite the occasional worries about large downward movements, there was probably less high drama associated with them than would have accompanied decisions to devalue a fixed exchange rate. some trends did seem less explicable, such as when the exchange rate fell below 49 us cents in march 2001 and lingered at very low levels for a while. this was in the wake of a slowdown in the australian economy, but was also the era of excitement over america ’ s so - called “ new economy ”, and the sense that australia was an “ old economy ”. 5 the “ old economy ” elements like mining would come into their own only a few years later. in 2001, the terms of trade were already rising, and a powerful upswing ensued over the next decade. even those who were prescient enough to understand the importance of the rise of china have, i suspect, been surprised by the extent of increase in australia ’ s terms of trade and its longevity. and of course this trend has carried australia ’ s currency to historically high levels – back, in fact, to about where the floating journey began thirty years ago. has the mean value around which the currency fluctuated from the mid 1980s to the mid 2000s now given way to something higher, or will it reassert itself? that is a fascinating question. 4. what difference did the float make? for the reserve bank in its monetary policy responsibilities, the float made all the difference in the world. we no longer had an obligation to stand in the foreign exchange market at a particular price. an earlier decision of the fraser government to issue government debt at tender meant that the reserve bank did not have to stand in the government debt market either. as a result of these two decisions – and they were both important – for the first time the bank had the ability to control the amount of cash in the money market and

of 0. 5 % in the previous quarter. the outcome for the second quarter reflected positive contributions from both domestic demand and net exports. the most recent survey indicators point to a broadly similar pace of real gdp growth in the third quarter of the year. overall, we expect the economic recovery to continue, albeit dampened, in particular, by weaker than expected foreign demand. domestic demand should be further supported by our monetary policy measures and their favorable impact on financial conditions, as well as by the progress made with fiscal consolidation and structural reforms. moreover, the decline in oil prices should provide support for households ’ real disposable income and corporate profitability and, therefore, private consumption and investment. however, the recovery in domestic demand in the euro area continues to be hampered by the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms. the risks to the euro area growth outlook remain on the downside, reflecting in particular the heightened uncertainties regarding developments in emerging market economies, which have the potential to further weigh on global growth and foreign demand for euro area exports. increased uncertainty has recently manifested itself in financial market developments, which may have negative repercussions for euro area domestic demand. bis central bankers ’ speeches according to eurostat, euro area annual hicp inflation was – 0. 1 % in september 2015, down from 0. 1 % in august. compared with the previous month, this mainly reflects a further decline in energy price inflation. on the basis of the information available and current oil futures prices, annual hicp inflation rates will remain very low in the near term. annual hicp inflation is expected to rise at the turn of the year, also on account of base effects associated with the fall in oil prices in late 2014. inflation rates are foreseen to pick up further during 2016 and 2017, supported by the expected economic recovery, the pass - through of past declines in the euro exchange rate and the assumption of somewhat higher oil prices in the years ahead as currently reflected in oil futures markets. however, there are risks stemming from the economic outlook and from financial and commodity market developments which could further slow down the gradual increase in inflation rates towards levels closer to 2 %. these risks are being closely monitored by the governing council. turning to the monetary analysis, recent data confirm solid growth in broad money ( m3 ), notwithstanding a decline in the annual growth rate of m3 to 4. 8 % in august 2015 from 5. 3 %