japan ( graph 9 ). again, in all three cases these rates are at extraordinarily low levels, even after the increases over recent weeks. these very low rates mean that savers investing in risk - free assets earn negative real rates of return. they also mean that the time value of money is negative. and they mean that there is no compensation for postponing consumption to tomorrow. so, how do we find ourselves in this remarkable situation? the proximate cause is the decisions taken by world ’ s major central banks to set their policy rates at these historically low levels and to buy unprecedented amounts of assets from the private sector. but central banks do not act in a vacuum. they respond to the world in which they find themselves. and, that world is one in which there is an elevated desire to save relative to the desire to invest. and when the appetite for saving is high and few people want to use those savings to invest in new assets, the return to saving is, unfortunately, inevitably low. we should all hope that this period of extraordinarily low interest rates does not persist for too much longer : that, over time, confidence lifts and once again businesses compete strongly for the world ’ s available pool of savings to fund investment in productive assets. once this happens, higher returns will again be offered to savers. my own view is that there bis central bankers ’ speeches is a reasonable prospect that, in time, this will indeed take place and that some normalisation of interest rates will occur. but it also seems plausible that the average return on savings, at least for a protracted period, will be lower than it had been previously. the population in many countries is ageing, aggregate household indebtedness is high and many of the service industries that are growing relatively quickly are not particularly intensive in physical capital. taken together, these trends might be expected to boost the desire to save relative to invest and thus lead to a structurally lower level of global interest rates than otherwise. of course, we can ’ t be sure that things will play out like this. many other factors influence global saving and investment decisions, including what happens in the populous developing countries in asia. but what we do know is that even if the current low level of interest rates is entirely cyclical – and has no structural element at all – it is proving to be highly persistent indeed. as cfos, i suspect that for many of you this is complicating your job

philip lowe : managing two transitions speech by mr philip lowe, deputy governor of the reserve bank of australia, at the corporate finance forum, sydney, 18 may 2015. * * * accompanying graphs can be found at the end of the speech. i would like to thank kevin lane for assistance in the preparation of these remarks. thank you very much for the invitation to be part of this year ’ s corporate finance forum. it is a pleasure to be here and to be able to address so many of australia ’ s leading cfos. this morning, i would like to talk about two transitions. the first is a domestic one – that is, the transition in the australian economy following a period of extraordinarily strong growth in investment in the resources sector combined with record high commodity prices. the second is a much more international one – and that is what seems to be a transition to a world in which global interest rates are lower, at least for an extended period, than we had previously become used to. as cfos, i suspect that you have a keen interest in both of these. the transition in the australian economy so, first, the transition in the australian economy. i am sure you are all familiar with the basic story here. in the middle of the previous decade, global commodity prices rose sharply, largely on the back of strong growth in china. in response, investment in the resources sector in australia picked up considerably to take advantage of these high prices and australia ’ s endowment of natural resources, especially iron ore, coal and natural gas. these developments, which were interrupted briefly by the financial crisis of 2008 and 2009, can be seen clearly in this first graph ( graph 1 ). by 2012, mining investment, as a share of gdp, peaked at its highest level in at least a century. the good news is that all this investment has considerably expanded australia ’ s capital stock, and thus our productive capacity. this is now flowing through into higher resource production and exports, and it will continue to do so for many years to come ( graph 2 ). in 2014, the tonnage of iron ore exported was double that of five years earlier, while the tonnage of coal exported was up 40 per cent over this same period. there has also been growth in lng exports, although the really big increases still lie ahead of us. all up, growth in resource exports has contributed around 1 percentage point to annual gdp growth over recent years, and this is expected to continue into the fore