should now conclude by saying something about the implications for monetary policy. monetary policy will continue to be conducted according to the medium - term principles contained in our inflation - targeting approach. this means that the exchange rate will be taken into account, along with the other variables that contribute to our inflation outlook ( where this is appropriately defined to exclude once - off factors such as petroleum prices and the gst ). on the other hand, as can be seen from our current behaviour, we have no intention of departing from our medium - term approach in an ad hoc attempt to push up the exchange rate for its own sake. the period ahead will contain many uncertainties, both here and abroad, but we have coped with uncertainty before. over the past year, we have had the unusual combination of strong domestic growth, a falling current account deficit and a declining exchange rate, all of which are conducive to future growth. we still have to ensure that the medium - term outlook for inflation stays on track which means making sure that several temporary factors have only a “ once - off ” effect and are not reflected in the ongoing inflation rate. if we succeed in doing that, we will be in a good position to continue the expansion we have had since 1991.

for granted. and, of course, if the assumptions we are making about the world economy turn out to be too optimistic, all bets would be off. i now come to the second part of my testimony, in which i attempt to answer the question of why we have done better than most other countries in asia or the pacific rim. in doing so, i am conscious that the story is not yet over, so this is really an interim report. i think a number of factors have been involved and i will list them in no particular order. as we go through them, it will become apparent that they are all intertwined. first, i think the asian crisis hit at a time when the australian economy was in good shape, partly for cyclical reasons. by mid - 1997, the economy was growing strongly and inflation was lower than our target. had we not received a contractionary impulse from the asian crisis, we may have been facing the need to tighten policy because of a potential overheating. no - one will ever know, but it is a possibility. i am conscious that attributing our performance over the past 18 months to our good starting point is rather superficial because it does not explain why the starting point was so good. but i will come back to that later. second, i think we have benefited from the flexibility of our exporters, who have switched from the contracting asian markets into the expanding north american and european ones, and into a number of other markets we do not usually think of as being important to us. the nature of our exports - with so much of them being commodities - has helped, but the efforts of our marketing companies and authorities should not be ignored. even so, it has not proved possible to prevent exports from falling, and over the year to the september quarter they fell by 2 per cent in volume. third, australia has benefited from a greatly improved perception of the soundness of its economic policies. the fact that the budget has moved back into surplus - where it should be in the mature phase of an economic expansion - has been important. so has nearly a decade of low inflation. also important on this occasion has been the recognition that australia scores well on such factors as its regulation of banks, other financial institutions and stock exchanges, and that its underlying body of commercial law and accounting practice is at or close to world best practice. not only have the international capital markets taken a better view of australia, but we also seem to have more confidence in