These are, needless to say, very welcome developments. Having said that, the situation is not without some challenges. I will mention just two. The first is the two-speed nature of the global recovery. Normally after a sharp downturn, the ensuing upswing is correspondingly strong. This has been the case among a number of Asia-Pacific economies, which take half of Australia’s exports.
While asset valuations have generally risen with improving fundamentals as well as increased investor risk appetite, household balance sheets are, on average, quite strong, business leverage has been declining from high levels, and the institutions at the core of the financial system remain resilient. Monetary Policy I will now turn to monetary policy.