Opening Statement to the Senate Economics Legislation Committee (Budget Estimates 2026–2027)

Notes

1. Opening Statement to the Senate Economics Legislation Committee (Budget Estimates 2026–2027) Michele Bullock Governor 4 June 2026
2. – Canberra Hansard Transcript Good afternoon, Chair and members of the Committee. My colleagues, Sarah Hunter and Chris Kent, and I are here to answer your questions. As you know, our mission is to promote the economic prosperity and welfare of the Australian people, now
3. and into the future. We do this by conducting monetary policy with the aim of maintaining low and stable
4. inflation and full employment, and we also support the stability of the financial system. But our
5. responsibilities go beyond this – we work to support a reliable, efficient and competitive payments
6. system, deliver efficient and effective banking services to Australian government agencies and provide
7. secure and reliable banknotes. Since the February Estimates hearings, the Monetary Policy Board has increased the cash rate to help
8. return inflation to target. I will briefly outline recent developments in the Australian and global
9. economy, discuss inflation and the outlook, and then conclude with some remarks on the Bank’s work
10. on payments, including the recent review of card payments and Project Acacia. International and domestic economic conditions In the first half of 2025, inflation in Australia was coming down and had declined to be within our target
11. range. Labour market conditions were easing, with employment growth slowing. And, of course, there was
12. significant uncertainty about the economic outlook driven by developments in global trade policy. At the
13. time, the Board judged that capacity pressures would continue to ease and that it was appropriate to
14. remove some restrictiveness from the stance of monetary policy by lowering interest rates. But inflation picked up notably in the second half of 2025, and to date remains too high. This increase in
15. inflation reflected a strong increase in output growth, which had added to existing capacity pressures in
16. the economy and tightness in the labour market. So inflation was too high even before the conflict in the
17. Middle East began. The conflict has led to a sharp increase in oil and other key commodity prices. This has already pushed
18. inflation higher through higher consumer fuel prices. We have also seen some tentative signs that higher
19. fuel-related costs may have been passed through to the cost of other goods and services, including new
20. dwelling costs. And there are indications that there are likely to be second-round effects on the prices
21. of goods and services more broadly. As I mentioned, this inflation impulse is in addition to the high
22. inflation recorded around the start of 2026. Developments in the Middle East remain highly uncertain but under a wide range of scenarios the conflict
23. could well contribute to even higher global and domestic inflation. The effects of the conflict on
24. economic activity are less certain and expected to vary across countries, but for Australia we judge that
25. it will weigh modestly on growth. This would worsen the trade-off between inflation and economic
26. activity. As you know, the Monetary Policy Board has increased the cash rate by 75 basis points in total this
27. year. These increases have been necessary to tighten financial conditions and slow growth in demand in
28. the economy to ensure we get on top of inflation. We’ve already seen some signs that this tightening
29. is starting to work, though it will take around 1 to 2 years for the effects to fully flow
30. through the economy. One of the channels through which monetary policy can often start to have an impact
31. quite quickly is the housing market. Conditions in the housing market have eased in recent months and
32. that partly reflects tighter monetary policy. Having said that, the recent increases in interest rates will have no impact on the increase in inflation
33. already in train following increases in the prices of oil and related commodities. What these increases
34. in the cash rate do, however, is to help to contain the domestic inflationary pressures and second round
35. effects from higher oil and commodity prices. I recognise that this is a difficult time for many households facing cost of living pressures. But it is important that we bring inflation under control. If high inflation persists, it risks becoming
36. embedded in price and wage-setting behaviour, particularly given the prolonged period over which
37. underlying inflation has been above 3 per cent since the pandemic. That would result in more
38. persistent inflation and would require even higher interest rates, and for longer, to return inflation to
39. target. High inflation hurts everyone. It reduces the purchasing power of all Australians and disproportionately
40. affects those on lower incomes and the more vulnerable people in the community. Economic outlook As you know, we published our latest forecasts in the May Statement on Monetary Policy.
41. Overall, the flow of data and developments since May has not been materially different to our
42. expectations, and we will publish a full update in August. We expect inflation to increase further in the near term. In our baseline forecasts published in May,
43. headline inflation is expected to peak at over 4½ per cent in the June quarter, while
44. underlying inflation remains above the target range until mid-2027. GDP growth is expected to slow this year, reflecting the effects of higher interest rates and the conflict
45. in the Middle East. We expect the unemployment rate to increase over the coming year or so, but still
46. remain lower than before the pandemic. We will be carefully monitoring conditions to assess how the
47. combined effects of higher interest rates and the energy price shock are playing out. Employment is expected to continue growing gradually over time. And it’s worth noting that the share
48. of the population with a job remains high notwithstanding recent declines. This is a welcome development
49. for those individuals, their families and the wider Australian economy. However, forecasts are just that. And the outlook is highly uncertain. Alongside our most recent set of
50. forecasts, we published two adverse scenarios that outline how the economy could evolve under a larger or
51. more prolonged conflict in the Middle East. This would increase commodity prices further and would result
52. in higher inflation and weaker growth than currently forecast. While these are challenging conditions, the economy is still expected to grow, albeit modestly, even under
53. these scenarios where oil prices are significantly higher than recent levels. Investment has been a
54. bright spot recently and growth is expected to continue in sectors of the economy with strong structural
55. tailwinds, such as software, data centres and renewable energy. The Monetary Policy Board will continue to assess the incoming data and developments here and abroad.
56. Having raised the cash rate three times, monetary policy is well placed to respond to developments.
57. Inflation is too high, and the Board will do what it considers necessary to achieve our mandate to
58. deliver price stability and full employment. Payments Finally, I will briefly highlight some of the Bank’s work on payments. Following our review of card payments, we announced three key changes. Surcharging on debit and credit
59. cards should end from 1 October, we are lowering interchange fee caps on debit and consumer credit
60. cards, and improving transparency around payment costs. Together, these reforms will simplify payments
61. for consumers and improve outcomes for businesses. In addition, the Bank, in partnership with the Digital Finance Cooperative Research Centre, recently
62. published the findings of Project Acacia. This work explored how tokenisation of assets and money could
63. enhance the functioning of Australia’s wholesale markets. The project found that there is growing
64. industry interest in the potential for tokenisation to improve efficiency and reduce risk in wholesale
65. financial markets. Similar momentum is building in key financial centres around the world. The Bank is
66. now in the planning phase on a range of subsequent initiatives aimed at promoting responsible financial
67. innovation and ensuring the Australian financial system is well positioned for the digital age. Thank you, and my colleagues and I are happy to take your questions.