In testimony to the House of Representatives Standing Committee on Economics, Reserve Bank of Australia Governor Michele Bullock said some upside risks to inflation appear to be materializing even as economic growth slows. The Monetary Policy Board has increased the cash rate target by 75 basis points in 2026, including 50 basis points since the committee’s February hearing. Headline and underlying inflation have been around or slightly above 3.5 per cent over the past year, and the August forecast did not show inflation returning to around the midpoint of the 2 to 3 per cent target until late 2027. Higher oil and input costs linked to the Middle East conflict, AI-related price pressures and remaining domestic capacity constraints could make inflation more persistent, while the labor market remains close to, but slightly tighter than, full employment. The board will assess at its next meeting whether the tightening delivered so far is sufficient to return inflation to target within a reasonable timeframe. The full effects of recent increases have yet to flow through the economy, while weaker housing conditions present a downside risk to activity. Financial stability risks from the housing slowdown remain contained because negative equity and severe repayment difficulties affect only a small share of borrowers. On payments, the RBA has completed its review of surcharging and merchant card costs, with card surcharging set to end on Oct. 1 alongside lower interchange fee caps and increased payment-cost transparency. It plans to publish priorities from its broader review of payments regulation by the end of 2026 and begin further consultation on prioritized issues by mid-2027. The RBA has also designated Linfox Armaguard under the new cash distribution framework, subjecting it to the framework’s obligations and allowing intervention if needed to maintain critical cash services.

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