Speech Summary Buffers and Options

The speech focuses on managing risk and ensuring economic resilience in an uncertain world. It urges optimism about the future, noting Australia has a long track record of good growth and a demonstrated ability to adjust in a changing environment. However, it also acknowledges that there is a degree of uncertainty about the future and discusses the benefits of having adequate buffers to deal with potential shocks. The speech looks at three key areas that can help cushion the economy in times of difficulty: the financial system, the fiscal arena and household finances. It encourages stronger buffers in these areas so as to provide more options to promote stability and prosperity.

On the financial system, the speech notes that recent efforts to boost bank capital, liquidity and stable funding have all been positive and would provide an extra layer of insurance against shocks. On public finances, it suggests rebuilding fiscal buffers, though not at the expense of infrastructure spending that is backed by a strong business case. In the case of household balance sheets, it says the high and rising levels of debt bear careful watching in order to avoid a build-up of financial imbalances.

The speech acknowledges that there is a price to pay for building these buffers, but argues that it is worthwhile doing so when the sun is shining, rather than when the storm clouds are building, or worse still, when it is too late. It makes clear the Reserve Bank of Australia’s central scenario for Australia remains a relatively positive one. The speech reiterates the Bank’s forecasts for the economy to grow at around its potential rate, before picking up a bit in the following year with reasonable prospects that inflation will return to around average levels over the next couple of years.

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