Testimony
Opening Statement to the Senate Economics Legislation Committee (Budget Estimates 2026–2027)
Michele Bullock
Governor
4 June 2026
–
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
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 the February Estimates hearings, the Monetary Policy Board has increased the cash rate to help
return inflation to target. I will briefly outline recent developments in the Australian and global
economy, discuss inflation and the outlook, and then conclude with some remarks on the Bank’s work
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
range. Labour market conditions were easing, with employment growth slowing. And, of course, there was
significant uncertainty about the economic outlook driven by developments in global trade policy. At the
time, the Board judged that capacity pressures would continue to ease and that it was appropriate to
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
inflation reflected a strong increase in output growth, which had added to existing capacity pressures in
the economy and tightness in the labour market. So inflation was too high even before the conflict in the
Middle East began.
The conflict has led to a sharp increase in oil and other key commodity prices. This has already pushed
inflation higher through higher consumer fuel prices. We have also seen some tentative signs that higher
fuel-related costs may have been passed through to the cost of other goods and services, including new
dwelling costs. And there are indications that there are likely to be second-round effects on the prices
of goods and services more broadly. As I mentioned, this inflation impulse is in addition to the high
inflation recorded around the start of 2026.
Developments in the Middle East remain highly uncertain but under a wide range of scenarios the conflict
could well contribute to even higher global and domestic inflation. The effects of the conflict on
economic activity are less certain and expected to vary across countries, but for Australia we judge that
it will weigh modestly on growth. This would worsen the trade-off between inflation and economic
activity.
As you know, the Monetary Policy Board has increased the cash rate by 75 basis points in total this
year. These increases have been necessary to tighten financial conditions and slow growth in demand in
the economy to ensure we get on top of inflation. We’ve already seen some signs that this tightening
is starting to work, though it will take around 1 to 2 years for the effects to fully flow
through the economy. One of the channels through which monetary policy can often start to have an impact
quite quickly is the housing market. Conditions in the housing market have eased in recent months and
that partly reflects tighter monetary policy.
Having said that, the recent increases in interest rates will have no impact on the increase in inflation
already in train following increases in the prices of oil and related commodities. What these increases
in the cash rate do, however, is to help to contain the domestic inflationary pressures and second round
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
embedded in price and wage-setting behaviour, particularly given the prolonged period over which
underlying inflation has been above 3 per cent since the pandemic. That would result in more
persistent inflation and would require even higher interest rates, and for longer, to return inflation to
target.
High inflation hurts everyone. It reduces the purchasing power of all Australians and disproportionately
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.
Overall, the flow of data and developments since May has not been materially different to our
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,
headline inflation is expected to peak at over 4½ per cent in the June quarter, while
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
in the Middle East. We expect the unemployment rate to increase over the coming year or so, but still
remain lower than before the pandemic. We will be carefully monitoring conditions to assess how the
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
of the population with a job remains high notwithstanding recent declines. This is a welcome development
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
forecasts, we published two adverse scenarios that outline how the economy could evolve under a larger or
more prolonged conflict in the Middle East. This would increase commodity prices further and would result
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
these scenarios where oil prices are significantly higher than recent levels. Investment has been a
bright spot recently and growth is expected to continue in sectors of the economy with strong structural
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.
Having raised the cash rate three times, monetary policy is well placed to respond to developments.
Inflation is too high, and the Board will do what it considers necessary to achieve our mandate to
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
cards should end from 1 October, we are lowering interchange fee caps on debit and consumer credit
cards, and improving transparency around payment costs. Together, these reforms will simplify payments
for consumers and improve outcomes for businesses.
In addition, the Bank, in partnership with the Digital Finance Cooperative Research Centre, recently
published the findings of Project Acacia. This work explored how tokenisation of assets and money could
enhance the functioning of Australia’s wholesale markets. The project found that there is growing
industry interest in the potential for tokenisation to improve efficiency and reduce risk in wholesale
financial markets. Similar momentum is building in key financial centres around the world. The Bank is
now in the planning phase on a range of subsequent initiatives aimed at promoting responsible financial
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.