Opening Statement to the House of Representatives Standing Committee on Economics

Testimony

Opening Statement to the House of Representatives Standing Committee on Economics

Michele Bullock

Governor

House of Representatives Standing Committee on Economics

18 September 2026

–

Canberra

Live now

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 purpose is to promote the economic prosperity and welfare of the Australian people, now

and into the future. One way we do this is by setting monetary policy to achieve low and stable inflation

and full employment, and by supporting the stability of the financial system. But we also promote the

prosperity and welfare of Australians across the full range of our responsibilities, which include

supporting a reliable, efficient and competitive payments system, delivering efficient and effective

banking services to Australian government agencies, and providing secure and reliable banknotes to

Australians.

Since the Committee’s previous public hearing with the RBA in February, the Monetary Policy Board has

tightened monetary policy by increasing the cash rate target by 50 basis points with the goal of

returning inflation to target. This has taken the cumulative increase this year to 75 basis points.

I will start with some background to these decisions and the outlook for the Australian economy.

I’ll then provide an update on the payments system and cash distribution. And I’ll finish off

with some remarks on how we are strengthening the RBA to position it to meet the challenges of the

future.

Our dual mandate: inflation and employment

As you know, the Monetary Policy Board sets monetary policy such that inflation is expected to return to

the midpoint of the

2–3 per cent

target range. There is flexibility

around the timeframe over which we meet our inflation objective, to balance this with meeting our full

employment objective.

Turning to the first part of our mandate. Inflation fell significantly from its peak of

7.9 per cent at the end of 2022 to be within the

2–3 per

cent

target range for a period in 2024 and 2025. But inflation picked up over the second half

of 2025 and has remained above target since then. Over the past year, both headline and underlying

measures of inflation were around or a little above 3½ per cent. The increase in inflation

partly reflects capacity pressures in the Australian economy, and the conflict in the Middle East has

added to these inflation pressures. Higher oil prices have increased inflation directly through their

impact on petrol prices. But it has also had an indirect impact, as many firms have passed input cost

pressures arising from elevated fuel prices through to the prices of other goods and services. Because of

these capacity pressures and the Middle East conflict, inflation is likely to remain elevated for some

time. I will turn to our policy response shortly.

But first I wanted to update you on the second part of our mandate. Various indicators continue to suggest

that labour market conditions remain close to, but a little tighter than, full employment. The

unemployment rate – at 4.5 per cent – is low by historical standards. And the share

of the population with a job is close to a record high. This is a welcome outcome for those individuals,

their families and the wider Australian economy.

Recent monetary policy decisions and the economic outlook

As I mentioned earlier, the Monetary Policy Board has increased the cash rate by 75 basis points this

year to help reduce inflation. Inflation is too high. We are focused on getting it back down and making

sure that it does not become embedded into price and wage-setting decisions.

Our latest forecasts – which were published in the August

Statement on Monetary Policy

–

suggested that inflation will not return to around the midpoint of the target range until

late 2027. At the time of the August Board meeting, we assessed that the risks to that outlook were

skewed to the upside.

Developments since then suggest that although growth in the Australian economy is slowing, some of these

upside risks to inflation appear to be materialising. Global cost pressures have increased – the

Middle East conflict, the AI boom and extreme weather events are contributing to upward pressure on a

range of energy, agricultural and technology-related prices.

There is little sign of resolution of the Middle East conflict. Oil and related prices have increased

sharply again and will add directly to inflation. Through our liaison program, we are hearing that many

firms are passing on higher input costs. This was expected. But it is important that these effects remain

contained and do not become embedded into price and wage setting decisions. Otherwise, inflation could

prove more persistent and require a stronger policy response. We are not alone in being concerned about

this – central banks in many other advanced economies are responding to this global inflation shock

by increasing their policy rates or signalling they will do so if needed.

The global AI boom is driving stronger growth in economies that are key parts of the AI supply chain. It

is also driving higher global prices for some AI-related technologies that are supply constrained. So

far, global demand pressures have largely been concentrated in AI-related supply chains.

And domestically, while labour market conditions have eased gradually as expected, some capacity pressures

remain. There is a risk that this could exacerbate the degree of pass-through of rising input costs.

In terms of domestic activity, recent data have been broadly consistent with our expectation that demand

growth would ease in the first half of 2026, following a period of above-trend growth late last year.

Because monetary policy works with a lag, the full effects of recent rate increases are yet to be felt.

The impact of the Middle East conflict on economic activity has been relatively modest so far, despite

the decline in confidence, with household spending growth moderating gradually. Business investment

growth has picked up strongly, driven mostly by spending on data centres and renewable energy projects,

though investment in other areas also increased.

A period of subdued growth of aggregate demand is needed to reduce capacity pressures and bring inflation

down sustainably. Continued weak productivity growth means that the economy cannot grow strongly without

putting pressure on inflation. This is a fundamental challenge for the Australian economy over the next

few years.

Conditions in the housing market have softened, and a larger-than expected easing could be a downside risk

to economic activity. The softer conditions partly reflect the usual transmission of monetary policy as

well as tax policy changes and the broader economic environment. Housing prices have fallen in most

capital cities and new housing loans have declined. But these falls follow a period of strong growth

– housing prices are still around 50 per cent higher than they were in early 2020.

Fundamentally, there is a structural undersupply in the housing market, which has underpinned prices over

recent years. Despite the recent falls in housing prices, the share of borrowers in negative equity

remains very limited and only a small share are facing severe difficulty with their loan repayments. This

is not to downplay that, for those affected, these circumstances are deeply challenging. But it does

indicate that financial stability risks are contained, including because borrowers, in aggregate, have

built up considerable savings buffers over recent years.

I want to emphasise that, while we expect housing prices to be affected when interest rates rise, monetary

policy does not target housing prices. Rather, what matters for monetary policy is how changes in housing

prices affect economic activity, the labour market and, ultimately, inflation. Lower housing prices can

weigh on consumption by reducing households’ net wealth. Turnover also declines when prices are

falling, reducing the consumption of goods that people tend to buy when moving house, such as furniture

and appliances. Lower housing prices can also affect incentives for residential investment and activity

in the construction sector. The reduction in demand via these channels helps to reduce inflation.

The Monetary Policy Board will meet in just over a week’s time. We’ll discuss our assessment of

the flow of data and how the risks are unfolding. A key question is whether the tightening in monetary

policy to date will be sufficient to bring inflation back to target in a reasonable time. Monetary policy

is well placed to respond to developments and we are focused on our mandate to deliver price stability

and full employment.

I recognise that higher interest rates are difficult for Australians with mortgages who are also facing

cost-of-living pressures. But reducing inflation is essential. High inflation hurts all Australians and

is especially tough on people with lower incomes and those in vulnerable financial positions.

Payments system

Another key responsibility for the RBA is the regulation and oversight of the payments system.

We have completed our review of surcharging and merchant card payment costs. Following extensive

consultation, the Payments System Board concluded that a package of reforms to remove card surcharging,

reduce interchange fee caps and improve transparency of payment costs would be in the public interest and

promote greater competition and efficiency in the payments system. With card surcharging set to be

removed from 1 October, we are monitoring the payments industry’s implementation and working

with industry stakeholders to support merchant awareness of the changes.

Following amendments to the

Payment Systems (Regulation) Act 1998

, which expanded our

regulatory remit, we started a broader Review of Payments System Regulation with the publication of an

Issues Paper in June. This Review is considering how regulation should respond to rapid innovation and

change in the payments landscape, including opportunities to improve competition, efficiency and safety.

The Issues Paper invited stakeholder views and evidence on which payments policy issues should be

prioritised by the RBA. In the submissions, stakeholders frequently raised issues relating to mobile

wallets, three-party card schemes, account-to-account payments and agentic commerce. We recently

published the stakeholder submissions and intend to release regulatory priorities by the end of 2026 and

start further consultation on prioritised issues by mid-2027.

Many of the issues raised in these two reviews were also considered by the Committee in its Inquiry into

Schemes, Digital Wallets and Innovation in the Payments Sector. We welcome the Committee’s report,

A Level Paying Field

. The report made 16 recommendations, including six directed wholly

or partially to the RBA, which we will address through our ongoing work program and regulatory reviews.

In May, we published the Project Acacia Final Report, examining how new forms of money and infrastructure

could improve the functioning of Australia’s financial markets. In recognising that many of the

barriers to financial innovation in Australia stem from coordination challenges, Project Acacia involved

extensive collaboration with industry and engagement with ASIC, APRA and the Treasury. The report found

that asset tokenisation, combined with innovations in money and settlement infrastructure, has the

potential to enhance the efficiency, functionality and resilience of Australia’s financial system.

Since then, we have launched consultation on the role of our own settlement infrastructure, RITS, in a

tokenised ecosystem and, with the Treasury, reaffirmed that there remains no clear public interest case

for a retail central bank digital currency in Australia. We are working alongside ASIC and other

regulators to explore a potential thematic sandbox focused on tokenisation, which was both a Project

Acacia recommendation and is aligned to the recommendations of the Enhanced Regulatory Sandbox review.

Together, with the Government’s Financial Innovation Strategy, this work is helping ensure Australia

is well placed to harness the benefits of financial innovation while managing the risks.

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 cash now plays a smaller

role in everyday payments, it is still widely used and valued by Australians. Around half of Australians

use cash in a typical week. The RBA remains committed to supporting the Australian Government’s

objective that cash remains available for as long as Australians want or need to use it.

The cash distribution system has faced significant challenges. Lower transactional cash use over recent

decades has challenged the economics of providing cash services, particularly in rural and regional

areas. Industry participants are working on new arrangements to support a more sustainable and efficient

system. These will require approval by the ACCC.

As the issuer of Australian banknotes, the RBA also plays a key role in wholesale cash distribution. We

provide banknotes to the major banks, which distribute these to the broader community. We are continuing

to work with industry so that our distribution arrangements, programs and incentives support efficient

distribution and availability of cash across the country.

The RBA welcomed the passage of the

Cash Distribution Framework Act 2026

, which provides

crisis-readiness and resolution powers to support continuity of critical cash distribution services. The

ACCC will oversee pricing, access arrangements and service-level standards.

The RBA recently designated Linfox Armaguard Pty Ltd under the new legislation, reflecting its significant

role in Australia’s cash distribution system and making it subject to the framework’s

obligations and requirements. Designation does not mean that the RBA will exercise crisis-readiness or

resolution powers in relation to Linfox Armaguard – it means that we have the ability to act if we

need to.

The work to operationalise these new powers and responsibilities is being undertaken in close coordination

with the ACCC.

An open and dynamic RBA

Our vision is to be an open and dynamic central bank that is trusted for the quality of our analysis,

policy and service delivery. We believe that provides the right foundation to promote the economic

prosperity and welfare of the Australian people, as the Parliament has tasked us to do.

Over the past three years, we have undertaken a significant program of transformation to achieve this

vision and position the RBA to meet the challenges of the future. This has spanned many dimensions of our

operations, including governance arrangements, policy and analytical frameworks, operational resilience,

risk management, culture and leadership.

Last year, the Governance Board reported that we had largely implemented the recommendations of the RBA

Review. Since then, we have completed the remaining recommendations, publishing a framework for

additional monetary policy tools and commencing regular meetings of an external expert advisory group on

monetary policy.

Nonetheless, we recognise that the world is evolving rapidly and that we must continue to evolve with it.

A mindset of continuous improvement is shaping all our work, from shoring up the resilience of critical

infrastructure such as RITS to our risk management, governance and ways of working. We are operating in a

high-risk environment and believe that these changes are strengthening the RBA’s ability to promote

the economic prosperity and welfare of the Australian people, both now and into the future.

Thank you for listening. My colleagues and I look forward to answering your questions.