there was some rise in unemployment. at the same time, inflationary pressures, which had declined through 2010, appeared to pick up noticeably in the first half of 2011 and the prospects were that inflation would rise to above the target range of 2 – 3 per cent over the next couple of years. that created a difficult environment for monetary policy. as the bank noted after the october board meeting, however, the downward revisions to recent estimates of underlying inflation and the softer global economic outlook have made the outlook for inflation less concerning, providing scope see stevens g ( 2011 ), “ the cautious consumer ”, address to the anika foundation luncheon, sydney, 26 july. bis central bankers ’ speeches for monetary policy to be supportive of economic activity, if needed. tomorrow ’ s cpi data will provide further information in this regard. it remains to be seen how the australian economy will respond to the recent financial volatility and the consequent fall in confidence and the loss of wealth. to date, however, as in the united states, the flow of monthly data in australia has been a little better than might have been expected given the volatile financial environment. retail sales have picked up a little, housing loan approvals also seem to be picking up somewhat, most measures of business conditions remain around average levels and the most recent employment data have been more positive after a number of weak months. nonetheless, job vacancies and advertisements are lower than their peak around the start of the year, overall credit growth remains subdued and the housing market remains soft. recently, there has been some easing in financial conditions following the fall in market interest rates that has accompanied the financial volatility. banks have passed through to borrowers notable declines in interest rates on term housing loans and some business loans, as their cost of funds has declined. increased competition among banks in response to the increased availability of deposits and relatively subdued demand for loans, has also resulted in some shaving of interest rates on standard variable mortgage loans for new borrowers. as a result, the interest rates on new loans are now around 10 – 15 basis points lower than they were early in the year. the modest net fall in the exchange rate in recent months has also, to some extent, reduced pressures on some sectors of the economy. looking ahead as i have noted, as yet there have not been signs outside europe that the rate of growth of economic activity has taken another step down since the recent bout of financial volatility. it is, however,

and interconnection between competing networks – before setting detailed standards themselves. so there is not a presumption that a black - letter regulatory solution will be adopted. in fact, at the time that the current regulatory arrangements for australia ’ s payment systems were established, there was an expectation that a co - regulatory model would be followed. in this view, industry would progress reform for the most part and the reserve bank ’ s powers would be used only occasionally, as a last resort, where reform could not otherwise be achieved. as it has turned out, however, the reserve bank ’ s powers have had to be used more often than i suspect was initially imagined. the reserve bank always explores ways that its statutory goals of competition and efficiency in the payments system can be achieved without resorting to its direct regulatory powers. but the history of the atm reforms demonstrates how difficult it is for pure industry - based reform to move ahead without at least some push from a public policy body. possible approaches reflecting on that experience then, and looking to the future, the question is how best to strike the balance and to facilitate reform most effectively. there are a few possible approaches – each one more interventionist than the previous one. first, the reserve bank could agree targets and timelines with the industry, but without any explicit regulation or penalty for failure to meet those targets. this approach is similar to the approach that the existing industry payments body, the australian payments clearing association ( apca ), takes with many of its projects. provided agreement on the need for change can be reached ( no small achievement ), apca plays a co - ordinating role in organising a project plan, providing some resources and setting timelines and targets, though in the past these projects have tended to focus on technical issues rather than strategic directions. in the absence of agreement on the need for change, however, industry - based projects – which, after all, rely on mutual agreement – tend not to proceed sufficiently quickly. that observation leads to the second option – the possibility of the reserve bank using overt regulation may be enough to forge agreement among industry participants. this is the path that was predominantly followed in progressing reform of the atm system, and in a number of other reforms to the payments system. where industry agreement on an issue was not forthcoming, the reserve bank has engaged the various sides to seek a solution with the clear possibility that it might regulate if agreement could not be reached. this approach was essentially behind the establishment of the