Transcript of Question & Answer Session Monetary Policy, Demand and Supply

Governor, we’ve got our lunch today in Sydney, but I’m going to ask you a bit of a Canberra question. You’re going to have your next meeting a week before the Budget is brought down, but I wondered if you could give us an idea of what you think is the best ideal macro setting for the Budget, in terms of assisting the Reserve Bank to do its job in managing that demand side and inflationary pressures? And at a microlevel of the Budget, if you like, given those consumption trends that you were showing us, would it necessarily be a bad thing if the government were able to find the money to help lift more people out of poverty by lifting welfare payments? Would that actually be a positive for the economy?

Well, the government doesn’t offer me advice on interest rates, as you know, so I’m reluctant to offer public advice on …

No, not advice.

… fiscal policy. But the strategy of retaining to the bottom line most of the boost of revenue that’s come from both bracket creep now and the higher commodity prices, saving that to the bottom line in an effort to repair the medium-term budget position, I think makes sense. So, within that general framework, there may be scope to kind of help certain parts of the population who are really suffering, but the general principle of saving most of the surprising boost in revenue, I think, is the right one at the moment. It’s important that we return the Budget to medium-term balance; that gives us options in the future. There are huge demands on the public purse, and we’re better off returning the medium-term position to balance, and I think that should be the priority at the moment.

Governor, good to see you again. Australia has some of the most expensive housing in the world, our households are among the most indebted in the world, and the mortgage books of the four large banks are equivalent to 70 per cent of GDP. In 2005, they were at 25 per cent of GDP. Is the economy and the banking system being distorted by our love affair with housing; and do you think the focus that we have so heavily on housing is one of the factors in the slowdown in productivity over the last couple of decades?

Well, there’s a slowdown in productivity right around the world – I think it’s another one of the legacies of the pandemic, it disrupted the nature of production – and we’ve seen slower productivity growth here and elsewhere, so I wouldn’t blame the slowdown in productivity on our kind of focus on housing. But Australians have chosen to live, by and large, in large capital cities on the coast, with fairly large blocks of land, and historically have underinvested in transport. They’re the reasons we have high housing prices. We have high housing prices because the price of land is high that’s embedded in each house. And it’s high because of the choices we’ve made as a society: where to live, how to tax housing and how to invest in transport. So that’s the issue. We’ve made choices collectively as a society that give us high housing prices, and I wouldn’t say that it’s a distortion, but it’s just the consequence of the choices that the people who live in Australia have made, and we have to live with that.

Governor, what makes you confident of pausing your monetary tightening when most of your peer central banks around the world continue to push up interest rates? What’s so special about Australia?

There are a few things that are different. One is that wages growth here hasn’t picked up to the same rate as it has in some other countries, particularly in North America. Wages growth in aggregate at the moment maybe is 3½ per cent; in Canada and the US, it’s maybe 4½, 5 per cent; and, in some European countries, it’s picked up as well. So we’ve got lower wages growth, which allows us to be a bit slower with raising interest rates. I think the other factor is that we have all this variable-rate debt. As I showed in one of my graphs, the increase in the average mortgage rate that Australians pay has been faster and larger than elsewhere around the world. One would expect that that would have a more subduing effect on household consumption. So they’re two factors. A third one is that the Reserve Bank Board is prepared to have a slightly slower return of inflation to target than some other central banks. Our last set of forecasts have inflation returning to target by mid-25; that’s partly because of the supply side of things that I talked about. Some other central banks are getting inflation back down more quickly. We’ve discussed that at our Board meetings: whether it would be beneficial to get inflation back down to 3 per cent a year earlier. There’s an argument for that, but it would mean job losses – more job losses – and our judgement at the moment is that, if we can get inflation back to 3 per cent by mid-2025 and preserve many of those job gains that have been delivered in the last few years, that’s a better outcome than getting inflation back to 3 per cent one year earlier and having more job losses. So there it’s the policy-reaction function, the wages and the fact that we’ve got variable-rate debt. They’re three factors that at least establish a plausible case that interest rates in Australia don’t have to go up to the same level as we’ve seen elsewhere around the world; but there are a lot of uncertainties here, and that could change.

Hi, Governor. So you listed a lot of reasons for pausing, in yesterday’s statement and today, like a forecast CPI moderation, squeezed household budgets and spending in a slowing economy, and unemployment picking up. Now that you have paused, what will be the trigger for you to restart hiking again?

I’m sorry; I missed the last part.

Now that you have paused what will be the trigger for you to restart hiking?

Well, as I said, at our next meeting, we’ll have a new set of forecasts; we’ll have an updated inflation reading; we’ll have a regular flow of monthly data on the labour market and business sentiment and household spending. So we’ll take all that together and, if we decide that we need higher interest rates to get inflation back to target over the next couple of years, that will be the trigger. At the moment, we think we may well have to increase interest rates again, but we’re not 100 per cent certain of that, and the flow of data from month to month will determine whether we need to move higher.

Thank you, Governor. Following on from the previous question, if you look at market pricing, as of yesterday, it seemed to entertain a slight possibility that the Reserve Bank may move again in May and, beyond that, pricing in a flat curve or potential cuts. So, if I could speak for the market, which is a very dumb thing to do, it seems like what it’s saying is either the Reserve Bank will move in May or not at all. Do you think that is a fair assessment? And, following on that, what sort of timeframe do you think is appropriate to assess the long and variable lag of monetary policy?

Well, I don’t really want to comment on the market’s assessment. If we were to hold next month, that doesn’t mean that we’re going to hold kind of right through the course of the year. Each month we look at the data we have before us, look at the progress on inflation: are we going to get it back to target within a reasonable time? So that’s the framework we use, and we look at that month to month. So the second part of the question?

How long is a reasonable timeframe to assess the—

Well, it depends upon how the data unfolds, doesn’t it? If the situation remains unclear next month and we hold steady, we kind of … until we get a clear signal one way or the other. But I do think it’s premature to be talking about interest rate cuts. Remember, we’ve got the highest inflation rate in 30 years, the lowest unemployment rate in 50 years and still two years before we get inflation back to the top of the target range. So I think it’s too early, way too early, to be talking about interest rate cuts, and the balance of risk prior to further rate rises, but it will depend upon the data.

Governor Lowe, thanks for your address today. Just a question about the mortgage cliff. We have hundreds of thousands of borrowers facing this cliff which is looming in a few tranches over the next year or so, as those fixed mortgages move into that higher rates world. Do you see that as an emerging shock down the road? And what role did that play in yesterday’s decision to pause rates at least for April? And also the pressures, particularly on low-income families who might have bigger mortgages compared to their incomes: what sort of data does the Reserve Bank collect from charities, for example, Lifeline, that are really dealing with families that are going to the wall and even thinking about how they’re going to pay the supermarket bill?

The first part of the question about the ‘mortgage cliff’: I don’t like that – the cliff analogy – because this is not a cliff, it’s kind of a ramp-up. I mean, a lot of people have already transitioned – they had fixed-rate loans to variable-rate loans – and the banks tells us that people who have already transitioned are performing as well with their mortgages as the people who had variable-rate loans. And you’ve got to remember that many of these people who’ve had fixed-rate loans for one, two, three years have paid much, much lower interest rates than the rest of the community for that time. And some people, I know, because they write to me and they say: ‘Well, we’ve saved the money, so we don’t like paying the higher interest rates on the variable-rate debt, but we’ve saved some of the money because we’ve been paying low fixed rates.’ Other people have used the low fixed rate to kind of spend for their household and are going to face a difficult adjustment. But the fact that they have to … they’ve known for some time they have to pay higher rates. Most people are sensible and I think have been planning for it. It doesn’t make it easier, but they’ve been planning for it. And the banks tell us that they’re working very carefully with those customers as they make the transition and there’s been no deterioration in the credit quality of those borrowers. So this hasn’t come as kind of surprise on day 1; this increase in interest rates has been coming for some time, so people have had time to plan.

What contact do we have with the financial counsellors and others? Through our liaison program, we talk to them and they tell us that, at the moment, they’re getting increased calls from people saying they’re in stress. And a lot of those calls, interestingly, are coming from people who rent – at least as many at the moment – so rental stress is at least as big an issue at the moment as mortgage stress. And, over coming months, I’m meeting with a number of service providers in this area to hear the stories directly myself. And quite a few Australians write to me, telling me of a very difficult situation that they’re in, and I read those letters with a heavy heart. But, when I read them, I think, ‘What is the alternative?’ If we didn’t put up interest rates, what’s going happen? Inflation will stay high, interest rates will have to go higher later on, and there’ll be more unemployment. So, at the individual level, it’s very difficult. But this rise in interest rates has been necessary and, if we didn’t do it, then there’s more pain down the track. So it’s a hard message, but it’s the truth.

Governor, good afternoon. I just want to focus on the comment you made in your speech about some of those tools other than interest rates that could be employed to bring down inflation. Given mortgage holders might be feeling unfairly targeted at the moment, why is it difficult to employ those tools? What are the dangers?

Well, broadly speaking, there are kind of two – this is at a very high level – two sets of tools. Things that improve the supply side of the economy. If we could improve supply, then demand can grow more strongly without causing inflation and for a while we could have less pressure on interest rates. The difficulty is that the supply side takes a long time to change. We talk about how hard it is to change the supply side of the housing market, and we all know how hard it is to change electricity generation capacity. But, in principle, that’s a tool. The other tool is using fiscal policy to manage aggregate demand. So at the moment we feel, at least again conceptually, an alternative to high interest rates would be more taxes.

Is that a good idea?

When people are suffering kind of cost-of-living pressures, you know, does the community want that? And the history has been, for better or worse, that using fiscal policy in that type of counter-cyclical way has a lot of both political and economic problems, and that’s why the task of using a tool to manage aggregate demand has been assigned to central banks. Raising interest rates is very unpopular, as I know, but it’s our job and we do it. It’s harder for the political class to do that. In principle, you could design different arrangements that would allow them to do it, but that’s a big redesign of our system and then there’s the supply side to work on. In the absence of other arrangements there, we have to do what we need to do with interest rates to manage aggregate demand to keep it in line with supply; that’s our task.

Dr Lowe, thank you for the speech. I’m interested in your assessment of a report by the Australia Institute’s Centre for the Future Work back in February. I don’t know if you’ve had the chance to read it but, in summary, essentially it said that the main driver for inflation in Australia is excess corporate profits, not wages, accounting for 69 per cent of additional inflation beyond the RBA’s target. So I wanted to ask you, firstly, what you made of that; and, secondly, are Australian mortgage holders right now wearing the pain and the consequences of excess corporate profits?

No. As I said in my prepared remarks, rising profits are not the source of the inflation pressures we have. Outside the resources sector, the share of national income that goes to profits is basically unchanged. I think what’s been happening is demand is strong enough to allow firms to pass on the higher input costs into prices, so the firms have not suffered a decline in their profits as their costs have gone up, with the exception of the construction sector. But most sectors have been able to pass on the higher input costs into higher prices and have kept their profit margins the same. So rising profits as a share of national income is not the source of inflation; it’s the supply-side issues and the strong demand in parts of the economy because of the pandemic response. That’s our interpretation of the data, and we’ve looked at this very carefully.

Thanks, Dr Lowe. Given your concerns about the lingering supply-side inflation risk from housing and energy, do you have confidence in the Federal Government’s policies, such as the Housing Accord and the (inaudible) Safeguard Mechanism, to manage these concerns?

Well, it’s not my job to express confidence in government policies. But I will kind of re-emphasise the importance of making sure that the supply side of the housing market is flexible. And that’s just not Federal Government; that’s state government and local government: it comes down to zoning and planning and the cost of developing new subdivisions. So that’s a really important issue for a country that has very large swings in its population growth. We need to be able to have the supply side of the housing market respond quickly when population growth changes. And, if we can’t do that, then we’ll have big movements in rents and housing prices. Housing prices in at least some of the cities are rising again, and I think it’s not unrelated to what’s going on with the population dynamics. So I’m not going to kind of express views on the government policy, but I just know it’s a really important issue for us to solve.

Governor Lowe, thanks for your time today. I know you’re a man of statistics and I do note that a professional darts player will hit the target 64 per cent of the time: the bull’s eye. I note that you’ve been the Governor now for 79 months and, during that time, inflation has only been in the 2–3 per cent band for nine months of that 79 months. The average is 2½ per cent during that time – spot on – but there have been wide variations higher or lower. My point to you is: what’s the use of having a target if you can’t hit it?

We will return—I mean, it provides a very strong anchor point. Just imagine if we didn’t have a target now. We’d be trying to … how would we be explaining what we’re doing? At least at the moment, I think the target is providing a strong anchor for expectations in the community. I hope you believe and understand that inflation will return to the 2–3 per cent range. If we didn’t have that medium-term anchor, I don’t know what you would believe about future inflation. But that anchor, hopefully, will provide you confidence that inflation will eventually get back down there. It gets hit away because we had a war and a pandemic with the biggest fiscal and monetary response ever. That meant inflation moved away from the target. But the target provides an anchor and, hopefully, we’ll come back to that.

Partially a segue to Peter Ryan’s question: I note that your speech indicates that household per capita consumption will be negative for at least two quarters? I also note that, in the space of a month, you’ve nudged up your estimate for how much household income is going to go on servicing mortgages from about 9½ per cent to nearly 10 per cent. I’m wondering if you’ve also revised the work of the Reserve Bank back in October, when the RBA estimated the effect of a 3½ per cent cash rate on borrowers when it said that, for a third of borrowers, they would lose 40 per cent or more of their disposable cash; for 15 per cent, they would have their disposable cash wiped out, which I think is getting to the point Peter was making. Is it actually going to be worse than the Bank was suggesting back in October?

I don’t think so. We’re going to publish the next data, the update of the Financial Stability Review, very soon. I know we’ll have updated calculations about the share of the population that’s most vulnerable to rising rates. The estimate for the share of mortgage payments in household disposable income that I talked about today of 10 per cent, that’s a bit higher than the previous estimate that I spoke about just because we’ve taken the forecasting rise out a bit longer and we’ve worked through the implications of all the fixed-rate loans shifting over. So it’s going to be a record high and it’s going to be really tough for some households, I acknowledge that. Per capita household consumption is declining at the moment, you’re right, and that was where you started. Consumption growth in aggregate is slow –0.3, 0.4 a quarter – and population growth is probably faster than that at the moment. So the higher interest rates are biting – we know that – and the cost-of-living pressures are biting as well. Many people are finding their real incomes are going backwards, and that’s affecting their spending. And the fact that we now see kind of clear evidence of the higher interest rates and the cost-of-living pressures biting is one reason why we thought it was appropriate to hold steady this month and just wait a bit, take the pulse of the economy and reassess.

A tiny clarification. Does that mean we are looking at that technical thing: a per capita recession?

I don’t like using that language, but, you know, we’re expecting growth … Our last set of forecast growth, economic growth, this year of about 1½ per cent; population growth probably close to 2. But our last set of economic forecasts were prepared on the assumption that population growth would be slower. So the big pick-up in population growth just recently has come as a surprise to us; I think it’s come as a surprise to most people. Now, you might recall that during the pandemic people were questioning whether non-residents would ever want to come to Australia again. We’d closed our borders and we’d made ourselves unfriendly. People were asking about that. Well, it turns out that’s wrong. People love coming here. They want to come here and work and to study and enjoy the fantastic standard of living we’re all lucky enough to enjoy. So people are coming here again and they’re coming in large numbers, they’re providing workers for firms, and we have to find somewhere for them to live.

So that does suggest though, doesn’t it, Governor, that, if you’ve got 1½ per cent growth and 2 per cent population growth, we are talking about a per capita recession, as the questioner suggests?

Well, they are both forecasts, you know, and we all know the problems with forecasts, but …

So a forecast recession.

Well, one of the issues that we’re going to have to work through with our next set of forecasts is: how does the stronger population growth flow through to consumption, investment, spending? Because that’s been a big change and, in our last set of forecasts, we thought population growth would be much slower than it’s now turning out to be. So we have to spend some time working out what are the implications of that.

Governor, thank you for your time today. My question is about inflation forecasts. We have seen the OPEC decision over the weekend. We have a minimum wage price decision coming up in a couple of months’ time. You have mentioned rent. Housing prices are going up. There are a lot of factors that are likely to put upward pressure on inflation and, at a time when other central banks are raising interest rates, the RBA has decided to pause. Are we going to be in a situation where interest rates are higher for longer in Australia, when there are expectations of cuts in other countries later this year?

Well, I’ve talked about some of the factors. The fact that lower wage growth is still the case in Australia: if that were to change, then that would be important for us. The impact of variable-rate mortgages seems more powerful here than elsewhere around the world. And the fact that we have a strategy at the Reserve Bank of trying to preserve as many of the gains in the labour market as we can. So, they’re the reasons that we’re slightly … our interest-rate setting is slightly different from elsewhere around the world. You talk about some of the upward pressures on inflation, but remember there are some downward pressures on inflation as well: the price of shipping that I showed you. You can see this in lots of indicators of supply-side problems: they’ve largely resolved, and we’re yet to see the resolution –the effects of the resolution – of those supply-side problems in prices in Australia. So we’re expecting, over the months ahead, to see quite weak growth in prices of consumer durables. Demand has weakened, shipping costs have come down, supply costs have come down, waiting times are back to normal. So we’re expecting that to flow through; and the government’s initiatives in the energy market to at least reduce the rate of increase in electricity prices will also help. So there are some factors on the downside, there are factors on the upside, and we have to assess them each month.

But are you comfortable with interest rates remaining higher for longer in Australia? Do you see that as a risk?

Well, higher for longer? If they need to be, they will be. It’s not a matter of me being comfortable with it. If we need to keep interest rates higher for longer to make sure that inflation comes back to 2–3 per cent in a reasonable time, we’ll do that. But that will be determined by the flow of events, won’t it?

Thank you for your address today, Governor. Ten hikes then a pause to assess the impact of that, and you’ve mentioned already, you know, the impact on mortgage borrowers, particularly those on variables, who are feeling the pain at the moment. I wonder what specifically you’re looking at in the mortgage books: for example, arrears. Is there a certain level you’re getting to reach? Is there an unacceptable limit in arrears before you consider hiking rates again? What sort of in the mortgage books are you following to determine the impact on mortgage borrowers?

Well, we’re looking at the arrears rates: 30 and 90 days and above 90 days. We’re looking at those arrears data very carefully, and we have a very good data flow from the bank and APRA on that. There’re no specific thresholds that we have. But the arrears rates at the moment, while they’re not the lowest they’ve ever been, they’re close to it. So, even if they rise quite a bit, it’s not going to be particularly high. One other thing that we’re looking at very carefully is the flow of money into mortgage offset accounts because this is the way that people with a mortgage save. The money goes into the offset account and we’ve noticed in the recent few months that the flow of money into these offset accounts has slowed a bit. That suggests that people don’t have as many free cash resources as they previously did. So that’s a really important source of information. We have very disaggregated data on individual mortgages, which allows us to track households who are putting money into these offset accounts and some households are taking money out of their offset account. So that’s a more important indicator for us at the moment than mortgage arrears rates, which are still low.

Governor, in leaving interest rates on hold after 10 fast consecutive rate rises, what exactly is the message that you hope households will take from that, especially borrowers and renters when they try to manage their finances?

The message is that we’ve increased interest rates a lot over a quick period of time and we’re taking stock of the effects of that, and we just want to pause before we proceed. If we need to raise rates again to get inflation back to 2–3 per cent, then we’ll do it. And I know that will be painful, but I just ask people to think of the alternative. If we don’t get inflation back to 2–3 per cent and we have persistently high inflation, persistently high inflation means persistently higher interests rates and higher unemployment. So it’s a very difficult message for people, but the reality we face is we need to get on top of inflation in reasonable time and, if we don’t, we’ll have higher interest rates and more unemployment. And we’re prepared to get back to inflation, to the target range, over a few years. We’re not on a path to get it back down straight away, because we want to preserve the jobs that we’ve been able to generate and we want to limit, to the extent we can, the pain that the household sector faces. But we need to get it back down, and I want people to understand that we will do what’s necessary, I think, to do that, as difficult as that might be in the short term.

Good afternoon, Governor. Thank you for your address. In the address, you talked a lot about optionality, but I’m curious about how much of that optionality comes down to concerns over a debt trap, not just with consumers but also at the fiscal and monetary levels, and how much of that has come down to global factors, like other central bank decisions or, indeed, the global banking crisis of late?

When you say a ‘debt trap’, I’m not … we’ve talked about the household debt situation; is that … I mean, I wouldn’t use that language, but the higher level of household debt is constraining household consumption; it’s clear. We’ve got highly indebted households facing a sharp increase in interest rates; it’s not surprising that spending is slowing. But that’s what we needed. It’s part of the other uncomfortable truth here: we needed growth in aggregate demand to slow. It was growing too quickly relative to the ability of the economy to produce goods and services. And, if we’d allowed that situation to continue, inflation wasn’t going to come down. So the higher interest rates in a high-debt environment is the mechanism through which spending slows. It’s not the only mechanism – there are other transmission mechanisms of monetary policy, including the fact that it has an effect on the exchange rate, on housing prices and on the incentive for everybody to borrow and save. So we’ve had to do this to get inflation back down.

Governor, in previous speeches, you’ve noted that Australians are really good at hoarding $100 bills. I think about 18 per person or something around there. Have you noticed any of these coming back into circulation? My service station owner says he’s seeing a lot more. So is that something that you’re keeping track of in the inflation mix? And the other question is on public sector wages. The CPSU has put in a claim for about 20 per cent federally. Standard and Poor’s are nosing around the wages book. Where does that fit in the whole inflation mix? What’s your perspective on that?

On the $100 notes, you’re right: there are roughly 18 $100 notes out there for every man, woman and child in the country. I don’t have my share, I don’t know many people who do. So it’s hard to know where they all are. But the growth in the number of $100 bills in circulation has stopped, which is unusual. It had been growing at, like, 6 or 7 per cent a year. Partly that’s higher interest rates, isn’t it? If you can get 4½ per cent on your transaction deposit – and, if you’re not getting it, I encourage you to look around for a bank that will give that to you – the incentive for holding $100 bills at home under your bed is less. So that’s been a change; whether it persists, it’s hard to tell. So the second question was?

Public sector wages.

Public sector wages. It’s really important that we don’t develop a pattern here where wages and prices chase one another. If they do, then inflation will get entrenched and we’ll have to have higher interest rates. We want to return inflation to 2½ per cent, on average, over time, and that means, on average, over time, wages growth can be 2½ per cent plus whatever we get on productivity growth. If productivity growth is zero, it carries implications for wages, doesn’t it? If productivity growth returns to 1½ per cent, we can all have bigger pay rises. So that’s the context that we think about it in. At the moment, you know, aggregate wage growth is 3½; that’s perfectly okay. But countries that are experiencing 5 per cent aggregate wage growth are saying they have to have higher interest rates. So that’s the choice, I think, as a society we face. If we’re going to have much higher aggregate wage growth, we’ll have higher inflation and we’ll have higher interest rates. That doesn’t necessarily carry any implications for any particular wage bargain; I’m just really talking about the aggregate situation we have. We have to have, over time, wages grow 2½ per cent plus whatever we can do with productivity growth.

Governor, welcome back to the club. It’s great to see you, and thank you for your speech. Since we last saw you, there’s been a change of federal government in Canberra – you may have noted that – and, secondly, most recently, in the largest economy in Australia in New South Wales, Premier Minns has made it an absolute policy assuredness that there will not be any more public asset sales, and he’s even looking at trying to bring back into government ownership assets, such as transport etc. Could I just get, without a political opinion, a broad opinion from an economic point of view, and certainly from the Reserve Bank’s point of view, about the retention of assets in public ownership. And, in relation to that $1 coin that Prime Minister Albanese – well, candidate Albanese – held up and had a resonant effect on the productivity that you’ve referred to today, are we going to see small and medium enterprises sharing that profit, following on from Ursula’s question, because successful businesses that are profitable are sharing that with their employees? Is that something that will lift productivity?

On the first question of whether assets should be in public ownership, it’s very hard to kind of give a kind of generic answer to that, but there are a couple of considerations. The first is: are they going to be better managed under public or private ownership? We’ve had experiences in this country where assets managed under public ownership have not been managed well and assets managed under private ownership haven’t been managed well; so it’s a matter of getting the ownership right. And the second consideration is funding future infrastructure. The strategy of the previous New South Wales government was to build assets, sell them off and use the funds to build more assets, which, you can understand that. If we’re not going to use that model, how do we fund the construction of new assets? So they’re the considerations: what’s the most efficient way of managing them, and then funding new infrastructure investment. As I understood it, the second part of the question was businesses and workers working together to increase productivity. Well, surely that must be a solution. What’s critically important in the end, I think, for productivity is the accumulation of skills and human capital. We’ll make ourselves more productive, more wealthy and more prosperous as a society if we can do things smartly. Things that come out of here are going to be the important thing. And how businesses and their workers can get together to get the best ideas to come out of here and to operate with those ideas: I think that’s … and that can only happen if people work together, can’t it? If we’re at loggerheads with one another, the best ideas aren’t going to come out and we’re not going to be as efficient.

I hope to see you again soon.

Yes, thank you.

Thank you, Governor, for your time and also for your patience in answering our questions today. The banking crisis – so something a little bit different from the economy. I’m just wondering if there are any top-level lessons for Australian banks around the recent strains that we saw in North America and Europe in the banking crisis. Perhaps if I could also ask, as a second part to that, is there any thought inside the Reserve Bank as to whether we need to change the maturity of the Term Funding Facility available currently with the banks?

I’ll take the second one first. No, we’re not considering changing the Term Funding Facility. In fact, I think the first repayments under that facility are due tomorrow.

June – oh, tomorrow.

Tomorrow – today or tomorrow – so it will be this week, and they will take place and the thing will kind of gradually wind down over time, as it should, and we’re not considering any changes in that at all. In terms of the regulatory responses to the recent banking problems, and, in the past couple of weeks, I’ve spent too many nights on kind of phone calls with my international peers and there are a few issues that are coming up that kind of, I think, need looking at again, not necessarily in Australia but kind of globally. The first is: how do we deal with the situation that bank runs can occur electronically and instantaneously? In previous bank runs, people had to line up at the ATM or at the branch to take the money out and people got sick of it and some went home. But now you can sit at home and, within five seconds, you can take your money out. So bank runs can occur much more quickly and in larger volumes. So what do we do? How should we think about bank liquidity and what are the regulatory responses to that? Another issue that’s coming up is the need for banks to hold capital against the interest-rate risk they hold, and APRA really has been a world leader here. And, in most of the international meetings I’ve participated in, APRA … Australia and APRA in particular has been called out for being a leader here. I think it’s worth taking a look at the design of the deposit insurance schemes again. I know in the US they discovered – which was something that I already knew – that failure of a mid-size bank would be quickly systemic and then they had to kind of backtrack on their planned response. There’s also an issue around the design of hybrid capital instruments and making sure of equity at the bottom of the creditor claim. Another issue that’s being discussed a lot is the operation of single-name credit default swap markets. Those markets are very illiquid and just one of two trades can move the price; and the financial media, particularly in Europe, kind of quickly focus on movements in single-name CDS spreads and kind of can spread bad news. So that’s another issue that’s coming up. But most importantly – and this is one that we do well in Australia – is making sure that a supervisor does first-rate supervision. It’s not just about black letter regulation; it’s about supervision. APRA, again, is a world leader on that front. So there are a lot of issues floating around in the international sphere and, no doubt, we’ll be talking about those in Washington next week.

It sounds like you’re just warming up, Governor, but we’ve run out of time. So thank you so much for your talk today.

Thank you.