##s food, energy and fuel. sources : abs ; rba ; refinitiv ; u. s. federal reserve. conclusion the cash - flow channel is the obvious way in which monetary policy is transmitted to aggregate demand and inflation in australia. compared with earlier episodes of rising interest rates, this channel has been operating with a slight delay given the high initial share of fixed - rate loans. but around half of all loans that were fixed at a low rate have now rolled off, and most of the rest will do so over the next 12 months. required mortgage payments are at a record share of household disposable income and will rise further as more fixed - rate loans expire. the cash - flow channel is felt acutely by those with variable - rate debt. but there are other important channels of monetary policy. in particular, the rise in interest rates has increased incentives to save. this is true even for households that had built up a lot of extra savings during the pandemic. households with debt also have an incentive to save more ; some may be able to pay down their debts ahead of schedule or at least run down their savings buffers more slowly than otherwise. these and the other channels of monetary policy are slowing the growth of demand and contributing to a decline in inflation. the lags of transmission mean that some further effects of rate increases to date are still to be felt through the economy, which will provide further impetus to lower inflation in the period ahead. meanwhile, the board is paying close attention to economic developments here and overseas, and some further tightening of monetary policy may be required to ensure that inflation, which is still too high, returns to target in a reasonable timeframe. endnotes [ * ] i would like to thank richard finlay, jonathan hambur, jeremy lawson and jack mulqueeney, as well as a number of staff from domestic markets, economic analysis, economic research, financial stability and international departments for help with this speech. see la cava g, h hughson and g kaplan ( 2016 ), ‘ the household cash flow channel of monetary policy ’, rba research discussion paper no 2016 - 12 ; floden m, m kilstrom, j sigurdsson and r vestman ( 2021 ), ‘ household debt and monetary policy : revealing the cash - flow channel ’, the economic journal, 131 ( 636 ), pp 1742 – 1771. unlike the cash - flow channel, the intertemporal

ratio ( of capital to assets not weighted for risk ), and establish minimum liquidity requirements. an additional increase in capitalization has been introduced for “ systemically important ” banks and, for macroprudential purposes, for the entire system. 1 the regulatory revision is still under way ; rules on total loss absorbing capacity are being finalized, to require global systemically for global systemically important banks ( g - sibs ) there is an additional requirement for core tier 1 capital, variable between 1 and 3. 5 per cent of risk - weighted assets depending on the bank ’ s systemic importance. specific requirements can also be introduced for national systemically important banks. among the measures applicable to the entire system, the provisions for a countercyclical capital buffer can be activated at times of excessively rapid growth of the credit aggregates. bis central bankers ’ speeches important banks to maintain an adequate amount of devaluable or convertible instruments in case of failure. another major innovation is the bank recovery and resolution directive ( brrd ). the directive, which is being transposed into italian law, shifts the burden of bank crises from the public sector to the banks ’ creditors ( shareholders and holders of other liabilities ). this marks the switch from a regime in which big banks were salvaged with public money ( bail outs ) from one that involves investors in banks ’ losses ( bail ins ). some countries have instituted explicit rules to separate credit business from the banks ’ proprietary financial and trading activity. the purpose is to eliminate indirect subsidies for these riskier activities, setting them apart from such socially valuable activities as provision of credit and payment services. 2 the effects on credit – first of all, these reforms produce a force for the contraction of banks ’ balance sheets. the tougher capital and liquidity requirements, the higher funding costs that will stem from the brrd ( which increases the risk of liabilities other than deposits covered by protection schemes ), and any direct limits to operations will decrease the supply of credit. market forces are pushing in the same direction : the increase in credit and sovereign risks has made medium - and long - term wholesale funding more onerous for banks, constituting one more factor reducing the profitability of credit intermediation. the banking system forged by these reforms, then, will be characterized by a greater “ safety margin ” in terms of both capital and liquidity, but at the same time by lower profitability and a smaller role in financing the economy. what are the likely