Senate Economics Legislation Committee, , 2:31:21 to 2:34:29
RBA Governor Michelle Bullock delivers an opening statement addressing the cash rate increases, inflation targets, and the impact of global conflicts on energy prices.
Topics: Energy prices, Middle East trade
Speakers: Michele Bullock, Senator Lisa Darmanin
I now call representatives from the Reserve Bank of Australia appearing today via video conference. And welcome to Ms. Michelle Bullock, Governor of the RBA and colleagues. Governor, would you like to make an opening statement?
Yes, I would thank you, Senator.
Please go ahead.
So good morning, Chair and members of the committee. My colleagues and I are here to answer your questions. As you know, our purpose at the RBA 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 a full range of our responsibilities, which include supporting a reliable, efficient and competitive payment system, delivering efficient and effective banking services to Australian government agencies, and providing secure and reliable banknotes to Australians. Since the committee's previous hearing with the RBA in June, the Monetary Policy Board has increased the cash rate target by 25 basis points. It did this with the goal of returning inflation to target. This has taken the cumulative increase in the cash rate target this year to 100 basis points. I'm going to start with some background to these decisions and the outlook for the Australian economy, and then I'll provide an update on the payment system and cash distribution. So as you know, the monetary policy board sets monetary policy such that inflation is expected to return to the midpoint of the 2 to 3% target range. There's some flexibility around the time frame over which we meet our objective inflation objective to balance this with meeting our full employment objective. But it's important for the economy that inflation does not diverge from target for too long, since that risks it becoming embedded in inflation expectations, which feeds through to price and wage setting decisions. Inflation fell significantly from its peak of 7.9% at the end of 2022 to be within the 2-3% target range for a period in 2024 and 2025. This followed a significant tightening of monetary policy over 2023 and 2023. Recently, inflation has been around 3.5% to 4% in year-ended terms. The increase in inflation reflects both persistent capacity pressures in the Australian economy and global cost pressures associated with the conflict in the middle. Both of the for these factors, inflation is likely to remain elevated for some time. At the time of the August board meeting, we assessed that the risks to that outlook were skewed to the upside.