an issue we have been discussing around our board table for some time. while low growth in wages has helped boost employment, it has also put the finances of some households under strain, especially those who borrowed on the basis that their incomes would grow at the old rate. and in terms of the inflation target, it is difficult to see how a continuation of 2 per cent growth in wages is compatible with us achieving the midpoint of the inflation target – 2½ per cent – on a sustained basis. so from that perspective alone, a pick - up in wages growth over time would be welcome. perhaps more importantly, sustained low wages growth diminishes the sense of shared prosperity that we have in australia. in our liaison with businesses, including here in adelaide, many tell us about the very competitive environment in which they are operating. they tell us about how this competitive environment means that they have limited ability to pay bigger wage increases. at the same time, though, we are hearing a few more reports of larger increases in those areas where there is a shortage of workers with the necessary skills. after all, the laws of supply and demand still work. we also see evidence in the aggregate data that wages growth has troughed and we expect to see a further pick - up. this is likely to be a gradual process, though. at today ’ s meeting, the board also reviewed the staff ’ s latest forecasts for the economy. these will be published on friday in our quarterly statement on monetary policy. those of you who are close readers of this document will notice some changes in this issue, as we seek to make the report more thematic. the latest forecasts should not contain any surprises, with only small changes from the previous set of forecasts, issued three months ago. this year and next, our central scenario remains for the australian economy to grow a bit faster than 3 per cent. this would be a better outcome than the average of recent years. if we are able to achieve this, we will make inroads into the remaining spare capacity in the economy and see a further modest decline in the unemployment rate. inflation is expected to remain low, at around its current level for a while yet, before gradually increasing over the next couple of years, towards 2½ per cent. a key element here is the pick - up in wages growth that i just mentioned. so, in summary, there has been progress in lowering unemployment and having inflation return to around the middle of the target range,

and we expect further progress in these two areas over the next couple of years. the other key point is that the progress we are making is only gradual : our central scenario is for a gradual pick - up in wages growth, a gradual lift in inflation, and a gradual reduction in the unemployment rate. while we might like faster progress, it is encouraging that things are moving in the right direction and are likely to continue to do so. 2 / 4 bis central bankers'speeches if this is how things turn out, it is reasonable to expect that the next move in interest rates will be up. this would reflect conditions in the economy returning to normal. in our discussions today, though, the board again agreed that there was not a strong case for a near - term adjustment in the cash rate. this reflects our view that the progress in moving towards full employment and having inflation return to the middle of the target range is likely to be only gradual. the board ’ s view is that while this progress is occurring, the best contribution we can make to the welfare of the australian people is to hold the cash rate steady and for the reserve bank to be a source of stability and confidence. so that is where we are at the moment. at our meeting we also discussed some of the risks around this general outlook. these lie largely in the international arena. one of the prominent ones is a possible escalation of protectionist measures in the united states and elsewhere. the very clear lesson from history is that this would be bad for growth. as a country that has prospered through openness, australia has a lot resting on this not happening. we also have a lot resting on the chinese authorities successfully managing the very significant build - up of debt in their economy. over recent times, they have paid increasing attention to this issue, which is a positive sign. given the importance of this issue, it was the subject of an extensive discussion at our board meeting today. domestically, for some time, we have seen the main risk to be related to household balance sheets. for a while, trends in household credit were quite concerning. on this front, things now look less worrying than they were a while back, although the level of household debt remains very high, which carries certain risks. in terms of financing, we also discussed the potential for some tightening in financial conditions in australia. in the united states, the cost of us dollar funding has increased for reasons not directly related to monetary policy and this increase is flowing