philip lowe : remarks at reserve bank board dinner remarks by mr philip lowe, governor of the reserve bank of australia, reserve bank board dinner, melbourne, 4 april 2017. * * * good evening. on behalf of the reserve bank board i would like to warmly welcome you all to this dinner. we are very pleased that leaders from the worlds of politics, academia and the community sector, as well as from business, have been able to join us tonight. having leaders join us from right across the community is important to us, as the decisions made by the reserve bank board and by the bank affect all australians. price stability, financial stability, sustainable growth and employment, and a well - functioning payments system matter to all of us. each of these is important to our collective prosperity. so thank you all for being here tonight. this is the first of these dinners that i have had the honour of hosting. a particular privilege is to be able to do so in melbourne, where we had our board meeting today at our offices on the corner of exhibition and collins streets. four of our nine board members are based in melbourne, with carol schwartz recently joining cath tanna, kathryn fagg and ian harper on the reserve bank board. it was more than 30 years ago that we last had four residents of melbourne on this board and, on that occasion, it was only for a very short period. at our meeting today, the board decided to leave the cash rate unchanged at 1. 50 per cent. as usual, the reasons for our decision were set out in the statement issued shortly after the meeting. i don ’ t propose to run through all the issues that were considered by the board. but there are two issues that i would like to talk about. the first is the improvement in the global economy. business and consumer sentiment have lifted in many countries and global trade and industrial production have picked up as well. commodity prices are also higher than they were for most of last year. headline inflation rates have returned to near normal levels in many countries, boosted by higher oil prices. and the point of maximum global monetary stimulus looks to have passed. given all this, at the g20 meetings that the treasurer and i attended in baden - baden in germany two weeks ago, the tone was much more positive than it had been at previous meetings. encouragingly, over recent months forecasts for global growth have been revised up, not down as has been the case for the past four years. so this is a

. nationally, growth in rents is the lowest for some decades. so it ’ s a complex picture and there is not a single story that applies across the country. but, as is often the case in economics, it largely comes down to supply and demand. on the demand side, population growth in australia – especially in our largest cities – picked up unexpectedly in the mid 2000s and it is only in the past couple of years that the rate of home building has responded. this imbalance was compounded by insufficient investment in the transport infrastructure needed to support our growing population. nothing increases the supply of well - located land like good transport links. underinvestment in this area is one of the factors that has pushed housing prices up. put simply, the supply side simply did not keep pace with the stronger demand side. the result has been higher prices. not surprisingly, the rising prices have encouraged people to buy residential property as an investment in the hope of ongoing capital gains. with global interest rates so low, many investors have found it attractive to borrow money to invest in appreciating residential property. this has reinforced the upward pressure on prices. this configuration of ongoing increases in indebtedness and rising housing prices has been discussed at length by the council of financial regulators. this council, which i chair, brings together the heads of the rba, apra, asic and the australian treasury. the concern has not been that these developments have posed a risk to the stability of our financial system. our banks are resilient and they are soundly capitalised. instead, the concern has been that the longer the recent trends continued, the greater the risk to the future health of the australian economy. stretched balance sheets make for more volatility when things turn down. given this, over the past couple of years there has been a concerted effort by apra to encourage lenders to strengthen their lending standards. this followed deterioration in these standards a few years ago. also, at the end of 2014, when growth in investor lending was accelerating, apra announced that it would pay very close attention to lenders whose investor loan portfolios were growing faster than 10 per cent. it did so with the full support of the rba. this guidance helped pull the whole system back and has made a positive contribution to overall financial stability. so too has asic ’ s focus on responsible lending. these measures constrained some higher - risk lending and reinforced the message to lenders that they need