Speaking in Melbourne at the Annual Dinner address, Mr Lowe said trust is an essential building block of economic prosperity and discussed the importance of trust in finance; community expectations; and in institutions. 

“Australia's banks have a strong record of being worthy of the trust that is placed in them,” he said. 

“(However) it is clear that the behaviours highlighted by the Royal Commission have dented the community's trust in parts of our financial sector.”

Mr Lowe said that the following needed to be addressed to strengthen trust in Australia’s financial institutions:

• conflict of interest issues which have dealt with inadequately by banks;
• poorly designed incentive systems that can distort behaviour; and
• light consequences for incorrect actions.

“Central to this task is creating a strong culture of service within Australia's financial institutions,” he said. 

“Too often our financial institutions prioritised sales over service. Correcting this starts with the system of internal reward established by the board and management. 

“The vast bulk of the people who work for Australia's financial institutions do want to do the right thing, and they do want to serve their customers as best they can. But, like everybody else, they respond to the incentives they face. 

“If they are rewarded on sales or short-term objectives, it should not come as a great surprise that that's what they prioritise. 

“Establishing the right incentives is key. One of the things that influences incentives is the consequences and penalties that apply when something goes wrong. 
Mr Lowe said that despite the Australian economy performing well, some in the community question whether they are benefiting from its success, echoing results found in CEDA’s Community pulse survey released in June. 

“Over the past year (the economy) has grown by close to three and half per cent, inflation has been low and stable at around two per cent, employment has grown quite strongly, and we are getting closer to full employment,” he said.

“Business conditions are positive and government finances have improved and are in reasonable shape. There is a lot of investment in infrastructure taking place. 

“Overall, it is quite a positive picture.

“Yet, despite how often this story is told, not everybody shares this positive assessment.

“The lack of real wage growth is one of the reasons why some in our community question whether they are benefiting from our economic success.

“Many citizens around the world have diminished trust in the idea that the policies that have underpinned growth over the past 30 years are working for them. 

“The diminished trust in the idea that living standards will continue to improve is a major economic, social and political issue. 

“It underlies some of the political changes we are seeing around the world. It is also making it harder to implement needed economic reform. 

“It is in our collective interest that this trust is restored.

“This is a challenging task, but it is not an impossible one. 

“Part of the solution is for the labour market to tighten further and for this to lead to a pick-up in household income growth. The current setting of monetary policy is encouraging this.

“From a longer-term perspective, another part of the solution is to boost our productivity. The factors that are contributing to flat real wages for many workers are complex, but many of them are linked to globalisation and technology. 

“The best way of dealing with this is not to ignore these forces, but to do what we can to capitalise on them. 

“This means government and business having a sharp focus on the question of how we can best flourish in this world of global markets and continuing improvements in technology.

“An important part of the answer must be investment in education and skills, and in research and development. We need to be thinking long term here. 

“Increasingly, our prosperity rests on the ideas that we have, how we can take advantage of those ideas, and how we can capitalise on new technologies. 

“This means that having a strong culture of innovation in our businesses is important. With the right investments, Australians can enjoy high and rising real wages in a highly competitive and technically sophisticated world.

“There are other elements to lifting productivity: the design of our tax system, the quality and pricing of our infrastructure and the strength of competition in our markets.

“The key point here is that raising productivity and ensuring a strong economy will, over time, help deal with the diminished trust that people have in the idea that their real living standards will improve.

“One of Australia's strengths is that we have strong and stable public institutions. We can sometimes take this for granted. But strong public institutions are one of the foundations upon which our economic prosperity is built. 

“They help support the public's trust in the development and implementation of economic policy, and in the fair and effective administration of laws and regulation. They can also help society balance some of the difficult trade-offs that we sometimes face.”

Speaking on the cash rate, Mr Lowe said the Board again decided to maintain the cash rate at 1.5 per cent, where it has been since August 2016.

“The economy is moving in the right direction and further progress is expected in lowering unemployment and having inflation consistent with the target,” he said. 

“The probability of an increase in interest rates is higher than the probability of a decrease. If the economy continues to move along the expected path, then at some point it will be appropriate to raise interest rates. This will be in the context of an improving economy and stronger growth in household incomes.

“The Board does not see a strong case for a near-term change in interest rates.

“There is a reasonable probability that the current setting of monetary policy will be maintained for a while yet. This reflects the fact that the expected progress on our goals for unemployment and inflation is likely to be gradual. 

“The Board's view is that it is appropriate to maintain the current setting of policy while this progress is made.”