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.