whether some people might be starting to get just a little overexcited. such an observer might want to satisfy themselves that lending standards are being maintained. and they might contemplate whether some suitably calibrated and focused action to help ensure sound standards, and that might lean into the price dynamic, may be appropriate. that is the background to the much publicised comment that the bank was working with other agencies to see what more could be done on lending standards. let ’ s be clear what this is not about. it is not an attempt to restrain construction activity. on the contrary, it is an attempt to stretch out the upswing. nor is it a return to widespread attempts to restrict lending via direct controls. that era, that some of us remember all too well, was one in which the price of credit was simply too low and credit growth too high all round. we don ’ t have that problem at present. that growth of credit to many borrowers the reserve bank does not take a doctrinaire view of the “ correct ” level of house prices. the endless discussion about whether or not the level of prices constitutes, at any one time, a “ bubble ” is not very productive. we can observe that, for more than a decade, the level of prices relative to disposable income has been noticeably higher than it used to be, and not just in australia. if that is a bubble, it is a remarkably longlived and widespread one. but even if we lose no time arguing over that question, it is still the fact that prices go up and down, and that these trends matter for the economy. if we are interested in strong and steady growth, we have an interest in dwelling prices and indeed all asset prices. bis central bankers ’ speeches remains moderate suggests that the overall price of credit is not too low. in fact the level of interest rates, although very low, is well warranted on macroeconomic grounds. the economy has spare capacity. inflation is well under control and is likely to remain so over the next couple of years. in such circumstances, monetary policy should be accommodative and, on present indications, is likely to be that way for some time yet. but for accommodative monetary policy to support the economy most effectively overall, it ’ s helpful if pockets of potential over - exuberance don ’ t get too carried away. turning from housing investment to investment more generally, a more robust picture

and provided a nominal anchor for economic and financial decisions. ( as you know, last week the government and the bank agreed to renew the inflation - control target of a 1 to 3 per cent target range and a 2 per cent target midpoint. ) the greater transparency of inflation targets has also anchored the bank ’ s approach to communicating what monetary policy is trying to achieve, our means of achieving it and our assessment of the state of the economy. while the targets continue to define our inflation objective, conditions in the economy are constantly changing. both international and domestic developments can affect the economic outlook in canada. the bank has to continually assess these changes and their implications for future inflation. if required, we take appropriate policy actions that are consistent with achieving the inflation - control target over the medium term. the role of communications is, therefore, to explain how and why circumstances have changed and to relate the bank ’ s actions to our inflation target and to the well - being of the economy. i ’ d like to suggest to you that there are at least three important and related ways that good communications can help monetary policy be effective. first, good communications helps put the bank and financial markets on the same wavelength. that is very important because, generally speaking, monetary policy is more effective when financial markets understand how the bank assesses economic developments in relation to our policy objectives. when we are all on the same wavelength, markets can anticipate, rather than simply react to, interest rate actions by the bank. if the bank does a good job of keeping market expectations broadly in line with the direction of policy, there tends to be less volatility in financial markets and a smoother, more rapid incorporation of any shifts in policy into interest rates and exchange rates. in other words, effective communications improves the monetary policy transmission process and leads to responses in the exchange rate and in the term structure of interest rates that are more consistent with the bank ’ s intentions. this greater stability and predictability is in everyone ’ s interest. a second reason why communications has become so important has to do with the effect of public expectations and behaviour on the bank ’ s ability to meet our policy objectives. improving public understanding and acceptance of what the bank is trying to do increases the chances of success in achieving the inflation targets with as little economic disruption as possible. it is largely a matter of the credibility of the bank ’ s commitment to those targets. let me be more specific. if consumers, investors, workers, businesses, and