, and some additional one - time factors. core inflation is running at about 2 per cent, but it is also being boosted by exchange - rate effects and a couple of other one - time factors. because monetary policy takes up to two years to have its full effect on inflation, responding to every fluctuation in prices would be counter - productive. therefore, we generally look through inflation variations that, in our judgement, will prove temporary. these judgements constitute a very important part of our deliberations. presently, we are looking through the effects of the drop in oil prices, the effects of the recent depreciation of the canadian dollar, and the one - time effects of fluctuations in meat and telecommunications prices. this is why we refer to “ underlying inflation ”, which estimates and excludes what we judge to be temporary factors, and is driven mainly by the changes in the degree of excess capacity in the economy. in our projection, total inflation, core inflation and underlying inflation all converge on the same level once temporary factors have dissipated. meanwhile, the issue of financial stability risks remains front - and - centre in our deliberations. these risks are evolving in line with our expectations. the level of indebtedness, as measured by the debt - to - disposable income ratio, continues to rise. it is likely to rise further as the decline in gross national income, due to the halving of oil prices, works its way through the system. on the surface, lower interest rates would be expected to promote more borrowing, which would increase this vulnerability. however, in the near term, lower borrowing rates will actually mitigate this risk, by reducing payments for mortgage holders and giving us more economic growth and employment gains. we believe that the best contribution the bank can make to easing financial stability risks through time is to help the economy return to full capacity and stable inflation sooner, rather than later. with that, carolyn and i would be happy to take your questions. bis central bankers ’ speeches

proportion of their payments early in the day to provide liquidity for the market. we will monitor flows to assess whether such “ affirmative action ” is necessary in australia. it will, of course, be essential that most high - value payments are settled real - time when the new system is available. anything less would defeat the purpose for which it is being built. there have been suggestions that some banks might by - pass rtgs by using lower cost ( but higher risk ) channels, such as the direct entry system which is designed for high volumes of small payments and settles on a net deferred basis. if this were to happen, we would have to consider what incentives or sanctions were needed to ensure that high - value payments travel along the rtgs path. rtgs will not, of itself, remove the risks that banks incur in international payments - in particular, the risks arising from non - synchronisation of payments and receipts in foreign exchange transactions. having rtgs for domestic transactions is, however, a necessary step toward tackling this. we ’ re currently investigating the extent of australian banks ’ settlement risks in their foreign exchange business. this is the next major frontier for risk reduction in banking. operational risk and year 2000 as their business becomes more complex and diverse, banks are increasingly reliant on computers for information - processing and control. as a result, they are exposed to various kinds of operational risk. for a bank active in derivatives trading, a breakdown in computer systems for even a relatively short time could be disastrous - preventing it from monitoring its changing market positions and disrupting its capacity to trade and to settle outstanding transactions. i recently heard a keen observer predict that the next big banking disaster would come from a ( hypothetical ) major international bank losing track of its derivatives positions for 24 hours. to protect against such events, banks invest heavily in the integrity of their computer systems, as well as in back - up and disaster recovery facilities. the rba is, of course, providing such back - up for the core of the rtgs system. the year 2000 problem poses a rather novel sort of operational risk because it is the result of past programming decisions which have produced the classic “ unintended consequence ”. basically, the risk is computer confusion and malfunction when the year identified in programming as “ 99 ” clicks over to “ 00 ”. the upshot for australian banks is the need to spend big sums on replacing or reprogramming their date - dependent computer systems