In terms of the financial risks facing the economy, "things have … been broadly moving in the right direction," according to Philip Lowe, Reserve Bank of Australia governor.  Speaking to a large crowd at the Anika Foundation Luncheon, supported by NAB and the Australian Business Economists, Lowe noted that for a number of years, risks were rising due to the nexus of high and rising levels of debt and escalating housing prices.  "Over the past year, though, housing price declines in the largest cities have reversed a small part of the earlier gains. Borrowing by investors has also slowed considerably, largely because of reduced demand by investors. There has also been a tightening of credit standards.  "While banks are competing strongly for customers with low credit risk, their appetite to lend to riskier borrowers has lessened a bit. Some of the non-bank lenders are providing credit to these borrowers." This change in financial trends has helped reduce the build-up of risk.  "It is helpful that this change is taking place at a time when the world economy is growing strongly, the unemployment rate is trending lower and the economy is recording good growth," Lowe said. "This is assisting with the adjustment and means that, notwithstanding the changes in the housing market, we still expect consumption growth of around three per cent over each of the next couple of years.  "We do, though, need to keep a close eye on the housing market and housing finance." "The timing of any future change in interest rates is dependent upon the speed of the progress that is made in reducing the unemployment rate and having inflation return to around the midpoint of the target range on a sustained basis," Lowe told his audience, largely consisting of corporate economics advisers and bankers, who set about trying to tease out his views further. In the Q&A session that followed his formal presentation, Lowe was asked if there was scope for lowering the RBA's inflation target from its current 2.5 per cent towards 2.0 per cent? Lowe's view, citing "academic arguments", is that a higher inflation target leaves more room to move - that is to reduce rates - in a downturn. He also argued that leaving the RBA's inflation target unchanged throughout the years has become a source of economic stability and confidence. He also expressed confidence that the RBA's target rate of inflation would be hit sooner or later. "Inflation is rising across the region, although the pick-up is very gradual due to price competition caused by exposure [of domestic markets] to globalisation," he said. The effects of competition also coloured a later response, when Lowe was asked how the RBA could deal with external short-term tightening, especially by the Fed, which will feed through to rates here, even if the RBA hasn't moved. "So far that hasn't happened as competition and [macroprudential policy] action by regulators has meant the average interest rate on mortgages is 20 to 30 basis points below where they were this time last year," Lowe said. So far,