A great snapshot from our next RBA Governor:
"I think kind of in general Australia is moving out on the risk return frontier, so that means that the potential growth of the economy because of what is going on in China I think has picked up, and that's going to be a long term trend, but kind of China and followed by India and Indonesia. They are incredibly important markets for us, and I think in expectation they have very good medium term prospects and we will benefit from that. So that's the high return, but those countries also tend to have quite large business cycles, as Don said, and commodity prices are notoriously volatile. And while they have moved up a lot – and I think a lot of that is going to be highly persistent – there will be a cycle there. So with 70 per cent of our trade going to Asia and more than 50 per cent in commodities, we will have big – we will have cycles as well. So we are under no illusion that we are going to have smooth sailing kind of indefinitely. We will have business cycles here. And the question is how do we best respond to that? What type of institutions, what type of arrangements do we put in place to deal with that? And there, the flexibility of the exchange rate is incredibly important, the credibility of the monetary policy arrangements, the ability of fiscal policy to respond quickly and decisively if that's needed and a flexible labour market. They are all key elements of dealing with the inevitable business cycles that we will have here, but I think compared to many other countries we are in a very good place to deal with those cycles, because we have the fiscal flexibility. We have a credible monetary policy framework. The labour market is working reasonably well and we have got a flexible exchange rate, so that puts us in very good stead to deal with these cycles."
