Testimony
Opening Statement to the House of Representatives Standing Committee on Economics
Michele Bullock
Governor
6 February 2026
–
Canberra
Hansard Transcript
Good morning, Chair and members of the Committee.
My colleagues and I are pleased to be here today to answer your questions. These hearings are an important
part of the accountability process for the Reserve Bank.
As you know, our mission is to promote the economic prosperity and welfare of the Australian people, now
and into the future. We do this by conducting monetary policy with the aim of maintaining low and stable
inflation and full employment, and we also support the stability of the financial system. But our
responsibilities go beyond this – we work to support a reliable, efficient and competitive payments
system, deliver efficient and effective banking services to Australian government agencies and provide
secure and reliable banknotes.
Since we last met with the Committee, the Monetary Policy Board judged that it was appropriate to tighten
monetary policy to help to return inflation to target. I will start with some background to this decision
and the outlook for the Australian economy. I’ll then make some remarks on the payments system and
cash distribution. And I’ll finish off with an update on our progress towards achieving the
objectives of the RBA Review.
Inflation and employment
As I noted, the Monetary Policy Board conducts monetary policy with the aim of maintaining low and stable
inflation and full employment. The
Statement on the Conduct of Monetary Policy
sets out our agreement
with the Government that an appropriate goal is consumer price inflation between 2 and
3 per cent. To achieve this, we set policy such that inflation is expected to return to the
midpoint of the
2–3 per cent
target range. But there is flexibility
around the timeframe in which we meet our inflation objective to balance this with meeting our full
employment objective – achieving the maximum level of employment that is consistent with low and
stable inflation in the medium term.
On the first part of our mandate, inflation has fallen substantially since its peak in 2022. However,
after a period of being within the
2–3 per cent
target range,
inflation picked up over the second half of 2025 to be materially higher than earlier anticipated.
Underlying (trimmed mean) inflation – which removes the more volatile movements in any given
quarter – had been easing and reached 2.7 per cent in mid-2025, before increasing to
3.4 per cent over the year to the December quarter 2025. The pick-up in inflation over the
second half of 2025 was observed across a broad range of categories, including for services, retail goods
and the cost of building new homes. Headline inflation – which has been affected by temporary
cost-of-living relief measures – increased to be 3.6 per cent over the year to the
December quarter.
On the second part of our mandate, various indicators continue to suggest that labour market conditions
remain close to, if a little tighter than, full employment. After a period of easing, labour market
conditions have stabilised in recent months, in line with the pick-up in the growth of demand. The
unemployment rate, which averaged 4.2 per cent in the December quarter, is low by historical
standards – and the share of the population with a job is close to a record high. There are
1.7 million more Australians in employment since the start of the pandemic. This is a welcome
development for those individuals, their families and the wider Australian economy.
Recent monetary policy decisions and the economic outlook
Earlier this week the Monetary Policy Board decided to increase the cash rate target by 25 basis
points to 3.85 per cent.
As I mentioned earlier, while inflation has fallen substantially since its peak in 2022, it picked up
materially in the second half of 2025. As recently as August 2025, we were forecasting inflation to be
sustainably back within the
2–3 per cent
band by this year. Private
demand had picked up but was not growing particularly strongly. Labour market conditions were easing
gradually. And the world economy looked very uncertain, with global growth forecasts revised downwards.
But over the second half of 2025, this picture progressively turned around, with a range of data
increasingly suggesting that international conditions, domestic demand and inflation were turning out
stronger than we expected. The Monetary Policy Board highlighted this evolving assessment in the
statements accompanying its November and December meetings.
Much of the recent increase in inflation is judged to be temporary – but some of it seems to be
persistent. Indeed, our outlook now sees inflation not coming back into the target band until the middle
of next year. What has driven this change in outlook?
There are a few factors. First, financial conditions have eased. We previously judged monetary policy to
have remained a bit restrictive through 2025 – but the recent inflation data and the pick-up in
credit growth cast some question over this.
Second, the world economy has proved much more resilient than expected so that growth in our major trading
partners has been much stronger than forecast. This partly reflects the resilience of the global trading
system, which has adjusted faster than expected to tariff changes. But it’s also a consequence of
the ongoing boom in AI investment, which has spilled over to a number of high-income Asian economies that
supply chips and other key inputs.
Third, private demand looks to have increased more strongly over the latter part of last year than we were
expecting. Household consumption and business investment both drove this strength. Consistent with that
strengthening of demand, the labour market has been a bit stronger than expected since November, and we
judge that it remains a bit tight. We hear from surveys and our own liaison that some firms are still
finding it difficult to find staff with the right skills and experience. This is another symptom of
excess demand for goods and services in the economy.
Given the inflation outcomes, the Board judged that stronger-than-expected demand in aggregate was pushing
up against the ability of the economy to supply all of the goods and services being demanded. In other
words, there was more excess demand in the economy than earlier judged. This means that we need to dampen
the growth of demand, unless the supply side of the economy can expand a little quicker. This is where
productivity comes in. Faster productivity growth allows for stronger growth in incomes and spending
without the emergence of inflationary pressures.
Based on its assessment that the economy is more capacity constrained, the Board judged that monetary
policy needed to be tighter, to dampen aggregate demand growth and to help to return the economy to
balance over the forecast period. It therefore judged that it was appropriate to raise the cash rate.
There are of course risks to this outlook – forecasts are always uncertain. One that the Board will
be monitoring closely is the extent to which the stronger inflation we have observed is persistent or
temporary – that is, the extent to which the economy is capacity constrained. The Board will be
closely monitoring the incoming data and continually assessing the extent of capacity constraints. If
growth in demand is stronger than expected, and growth in the economy’s supply capacity remains
limited, it is likely to add further to capacity pressures, and hence inflation persistence. If demand
growth is weaker, or supply growth is stronger, inflation may return towards target more quickly.
Significant uncertainties also remain in the global economy, with elevated trade and geopolitical risks:
circumstances could change quickly.
I recognise the challenges that the cash rate increase brings for Australians with mortgages. But it is
the right thing for the economy as a whole. We need to ensure that inflation is low and stable so that
households and businesses can plan, invest and create jobs. High inflation hurts all Australians –
whether you’re paying a mortgage, renting, running a business, or just trying to make ends meet. It
is especially tough on people with lower incomes and those in more vulnerable situations.
Payments system
Another key responsibility for the RBA is our regulation and oversight of the payments system. The RBA is
committed to promoting and supporting a modern and innovative payment system in Australia.
We are completing our review of surcharging and merchant card payment costs. This review has benefited
from extensive engagement from a broad range of stakeholders, including over 170 written submissions
to our consultation paper. The staff have also conducted over 100 bilateral meetings and gathered
additional evidence from stakeholders. The Payments System Board will publish its conclusions by the end
of March 2026.
After the review of merchant card payment costs and surcharging, we will consult on which issues should be
prioritised by the RBA under the amended
Payment Systems (Regulation) Act 1998
. These
amendments expanded the RBA’s remit to a broader range of payment systems and their participants
– including three-party card schemes, mobile wallets, ‘buy-now, pay-later’ providers and
e-commerce platforms. This consultation is expected to take place in mid-2026. We acknowledge that on
8 December 2025 this Committee commenced its
Inquiry into Schemes, Digital Wallets and
Innovation in the Payments Sector
. The RBA has made a submission to the inquiry and looks
forward to your deliberations. We see the Committee’s work as complementary and concurrent to the
RBA’s own consultations in the payments area.
The RBA has also contributed to the Council of Financial Regulators ‘Better Regulation Roadmap’,
which is promoting streamlined regulation to help drive stronger productivity growth in our economy. As
part of this, the RBA is supporting innovation by exploring how new forms of digital money can support
tokenised asset markets and creating a plan for modernising Australia’s core settlement
infrastructure – the Reserve Bank Information and Transfer System (RITS).
I also wanted to note that on 27 January, the RBA experienced a system issue that disrupted some
payment and property settlement services. We restored settlement for these services in the afternoon, but
a second issue for property settlements meant that full restoration was not achieved until the evening.
We apologise for the disruption caused by the incident. We recognise the critical role we play in the
payments system and are conducting a full review of the incident, which we plan to publish before the end
of February. This incident reinforces the importance of the RBA’s active program of work to
strengthen the operational stability of its critical settlement systems.
Cash distribution
I would also like to update the Committee on recent developments in the cash distribution system. Cash
remains a critical part of an inclusive and resilient payments system. Although the use of cash for
everyday payments has declined in recent decades, a range of indicators suggest cash use has stabilised
in the past few years. The RBA remains committed to supporting the Australian Government’s policy
objective to ensure cash remains a viable means of payment for as long as Australians want or need to use
it.
The cash distribution system has faced significant challenges. These issues are most pressing for rural
and regional areas. The industry needs to work together towards a more sustainable distribution system
that supports the needs of all Australians. Linfox Armaguard – which is the main provider of
cash-in-transit services – and its major banking and retail customers have been working towards a
future pricing model. This is aimed at supporting more sustainable and efficient distribution
arrangements. Any proposed model would need to be considered by the ACCC.
As the issuer of Australian banknotes, the RBA also plays a key role in cash distribution. We provide
banknotes to the major banks, who distribute these to the broader community. We are continuing to work
with industry so that the RBA’s arrangements and incentives support efficient distribution and
encourage banks to hold cash across the country.
We also continue to work closely with other public agencies to support the long-term availability of cash
in the public interest. The Council of Financial Regulators (CFR), which I chair, together with the ACCC,
is taking an active interest in cash distribution. Last year, the CFR and ACCC jointly consulted on
potential regulatory guardrails to support resilience and fair access to critical cash distribution
services. The Government also recently introduced a mandate for large grocery stores and petrol stations
to accept cash, which aims to support Australians who want to pay in cash for essential goods.
Progress towards achieving the objectives from the Review of the RBA to be fit for the future
As you know, the RBA Review was released in April 2023. The Review recognised the RBA’s longstanding
contribution to Australia’s economic success and the professionalism of our staff, while identifying
areas for improvement. It focused on a few key areas – monetary policy, governance, transparency
and culture – that are central to our effectiveness as Australia’s central bank. The findings
from the Review have shaped our transformation agenda since that time.
Some recommendations from the Review involved actions that we could undertake ourselves – changes to
the number and timing of Board meetings, our Board processes, and our culture and leadership
capabilities.
But other recommendations required legislative change, including the creation of a separate Governance
Board. So, in March 2025, the most significant reforms to the RBA since the 1990s came into effect. Our
work is now overseen by three boards: the Governance Board, the Monetary Policy Board and the Payments
System Board.
The Governance Board is now the accountable authority under the
Public Governance, Performance and
Accountability Act 2013
. It is effectively responsible for overseeing the operations of the
RBA including strategy, risk, resourcing, budget and the balance sheet. But there is one important
difference with boards in commercial organisations – we are a policy institution and so there are
circumstances where policy takes precedence over normal commercial considerations. A good example is use
of the balance sheet for monetary policy or financial stability considerations. Nevertheless, the
creation of the Governance Board has sharpened our focus, strengthened decision-making and improved
accountability, supporting our commitment to modernising the RBA.
In line with its new responsibilities, the Governance Board published a report on our progress in meeting
the recommendations of the Review in December last year. To date, the RBA and the Government have
addressed 41 of the 51 recommendations. Clear implementation plans are in place for the
remaining recommendations, and the necessary work is well under way. We will implement two further
recommendations in 2026: publication of a framework for additional monetary policy tools and convening of
an external expert advisory group on monetary policy. The remaining recommendations are ongoing
commitments, where we have established the structures, processes and capabilities needed to sustain
progress in these areas. They include initiatives to strengthen leadership, embed cultural change,
enhance analytical expertise and deepen our understanding of monetary and fiscal policy interactions. We
have also committed to conducting future reviews of the monetary policy framework and our institutional
capability.
Our work does not end with the implementation of specific recommendations. In the spirit of the Review, we
are embracing a mindset of continuous improvement – recognising that the environment in which we
operate is dynamic and that our institutional practices must continue to evolve. We remain committed to
pursuing excellence in everything we do as we build an RBA that is fit for the future.
I will finish on that note. My colleagues and I look forward to answering your questions.