- term intent. in fact, that has been our thinking for some time. through most of last year, we felt that inflation would probably tend to rise, and we would probably need to tighten further at some stage to limit the rise. but we also thought that the rise would be gradual, against a backdrop in which inflation expectations were pretty well anchored. hence, we felt that in formulating our policy response, we had time on our side, a luxury previous generations of policy - makers usually did not have. we took advantage of that to wait, evaluating further information before acting. thus far, i judge that to have been an appropriate strategy, especially given the inflation outcomes of late. nonetheless, the bank has to remain watchful in the face of a number of factors which obviously could push inflation higher. we will be ready to respond as needed so as to maintain low inflation.

surprising given the relatively healthy profit situation, the high level of business confidence and the expected growth in spending. these more buoyant conditions may also encourage businesses to attempt to rebuild profit margins, which will be a factor underpinning inflation over the next year or so. thus, we believe that if monetary policy maintained its present stance for too much longer, there is little risk of a serious slowdown, but a high risk that the economy in time would overheat. this provides the basis for our view that monetary policy should be returned to a more neutral setting. i think there is widespread agreement with this assessment of the situation, but inevitably there will be people who do not agree. one doubt you sometimes see expressed is the fear that any rise in interest rates will “ choke off the expansion ”. not surprisingly, we feel that this fear is misplaced. at one level, it amounts to saying that the expansion is so fragile that it can only be continued if monetary policy is kept permanently at an expansionary setting. we also care about continuing the expansion, but feel that the least risky way of doing so is with a more neutral interest rate setting. at another level, the fear may be that we at the reserve bank will err on the tight side. of course, that is possible, but our track record does not support this view. over the past decade or so, the thing that stands out about our monetary policy is the fast rate of economic growth it has permitted compared with other comparable countries, not any tendency to over - achieve with inflation reduction. where we differ from some observers is that we are mainly interested in the medium run, i. e. we want to sustain the expansion rather than to maximise its speed over the next year. we have been consistent in this approach for the best part of a decade, and it has served us well. i would now like to change to a subject that was highlighted by this committee in its press release announcing today ’ s hearing, namely credit card reform. the reserve bank released its consultation document in december last year. in it, we proposed, subject to further consultation, three major changes to the four party credit card schemes that operate in australia : – first, a new and transparent standard for setting the interchange fees on credit card transactions which would lead to a reduction in those fees, and thus in the merchant service fees paid by businesses ; – second, the ending of the prohibition imposed by the card schemes that prevents merchants from passing the