particularly those whose economies were not especially robust to begin with, could be more noticeably affected than would be the case in, say, china or india. a really serious adverse shock from this source looks less likely now, however, than it did a month or two ago, with oil prices having declined quite sharply from their peak. financial markets have certainly responded in a fairly relaxed way to these developments. bond yields remain fairly low by historical standards, particularly given the back - drop of a tightening cycle by the federal reserve. this is a rather different response to some other episodes where oil prices have risen substantially, as shown in the table below, which suggests that a persistent rise in inflation is regarded as unlikely. this may reflect an expectation that the adverse effects on growth for the industrial countries will inhibit any lasting inflation impact, but is also consistent with the idea that neither growth nor inflation may be affected by very much or for very long. change in us 10 - year government bond yield 1 year into oil price rise beginning of oil price rise change in bond yield ( bps ) september 1973 + 104 december 1978 + 118 june 1990 – 19 february 1999 + 113 october 2003 – 28 source : us federal reserve, global financial data the latter view probably fits more easily with the fact that markets are demanding relatively little compensation for credit risk. a significant weakening of growth in the industrial countries would surely have some adverse implications for emerging market countries, and lesser quality corporates. if that were expected, we would presumably see it reflected in risk spreads - but we do not see that. at present, then, markets apparently do not anticipate much in the way of adverse impact from the energy price changes. either that, or there is a tension between various markets, the resolution of which will be fascinating to watch. but the main point is still that the current level of oil prices is mainly a sign of global demand strength it is just that some of the strength is in different places from historical patterns. for australia, a global growth situation that is strong enough to be exerting upward pressure on energy ( and other resource ) prices, and where growth is weighted towards asia, seems for the moment to be quite a favourable one. * * * * * according to the national accounts, australia recorded moderate growth in 2004. it looks like gdp growth over the four quarters to december will be less than 3 per cent unless there is a big surprise for the december quarter or upward revisions to previous quarters. let me leave aside the apparent

countries and have not come as a surprise to us. the increase in liquidity in the financial system has also resulted in the spread between the bank bill swap rate ( bbsw ) and the overnight indexed swap rate ( ois ) falling significantly. at the three - month horizon this spread is now around zero, which has further reduced funding costs for both the banking system and for the non - bank lenders. the increased liquidity in the system also means that the bank ’ s daily open market operations are now on a smaller scale and we have adjusted the frequency of the longer - term operations. we will continue to adjust these operations as required to support the liquidity of the system. so that is where we are four weeks after the announcement of our policy package. this package, combined with the government ’ s fiscal policies and the work of the banks and many businesses, is building that strong bridge that i have spoken about. our monetary response is keeping funding costs low across the economy and credit available. the fiscal response is providing significant support to both jobs and incomes. businesses are also helping their employees by keeping them on where they can and the banks are supporting their customers with more flexible terms. together, these efforts are helping the australian economy through a difficult period and positioning us well for the recovery. thank you very much for listening. i am here to answer your questions. 5 / 5 bis central bankers'speeches