speech opening statement to the house of representatives standing committee on economics philip lowe governor canberra – 16 september 2022 good morning chair and members of the committee. thank you for holding this hearing. at the reserve bank, we take these hearings very seriously. they are a critical part of the accountability process and my colleagues and i are committed to answering your questions openly and transparently. the previous hearing was held in early february. a lot has changed since then. i would like to highlight three of these changes : 1. the decline in unemployment. 2. the surge in inflation. 3. the earlier and sharper - than - expected increase in interest rates. lower unemployment in february, the unemployment rate stood at 4. 2 per cent. today, it is 3½ per cent. this is the lowest unemploy ment rate in almost 50 years. labour force participation has also increased, so that a higher share of the workingage population has a job than ever before. and underemployment is lower too, as people who work part - time are finding it easier to get the hours they want. i wanted to recount these facts because the improvement in the australian labour market is a major achievement. australians are finding it easier to get a job than they have for a long time. young people and women are benefiting most from this and they have greater opportunities. our economy and our society are stronger as a result. higher inflation in contrast, the second change since february – the increase in inflation – is an unwelcome one. when the previous committee met in february, underlying inflation in australia had just reached the midpoint of the 2 to 3 per cent target range for the first time in many years. seven months on, we are in a very different position. inflation has very quickly gone from being too low, to being too high. over the year to june, the headline inflation rate was 6. 1 per cent. it is expected to increase further over the months ahead to peak at around 7¾ per cent later this year. inflation is then expected to start declining, to be back around 3 per cent late in 2024. global factors explain much of this increase in inflation. russia ’ s invasion of ukraine resulted in major disruptions to energy markets, increasing retail energy prices around the world. and covid - related interruptions to global production are still rippling through global supply chains, pushing prices up. the demand for goods in global markets has also been very strong

finding jobs and getting more hours of work. some households are also continuing to save at a higher rate than before the pandemic. quite a few have also built up large financial buffers, although many other households have only very limited buffers. in the face of these competing factors, the recent data suggest that spending has remained resilient so far. there is, though, considerable uncertainty as to how these factors will balance out over the months ahead and we are watching the situation carefully. in terms of the outlook for interest rates, the reserve bank board expects that further increases will be required to bring inflation back to target. we are not on a pre - set path, though, especially given the uncertainties i have just spoken about. the increase in interest rates has been rapid and global and we know monetary policy operates with a lag. at some point, it will be appropriate to slow the rate of increase in interest rates and the case for doing that becomes stronger as the level of interest rates increases. as i have said previously, the size and timing of future interest rate increases will be guided by the incoming data and the board ’ s assessment of the outlook for inflation and the labour market. on a different matter, as you would know, the government has commissioned a review into australia ’ s monetary policy arrangements and the rba. both the board and the bank ’ s staff welcome this review and we have already had constructive discussions with the review panel. we look forward to discussing with this committee the topics raised by the review at this and future hearings. to complement the external review, the rba is undertaking internal reviews into the three - year yield target, the bond purchase program and our approach to forward guidance. the yield target review was published in june and the review of the bond purchase program will be published next week. the forward guidance review will be published later this year. other responsibilities of the rba finally, since this is the first hearing of this committee under the 47th parliament, i would like to draw your attention to some of the rba ’ s other responsibilities. we are the banker to the commonwealth government. we operate the official public account and are the government ’ s main transactional banker, providing banking services to the ato, services australia and many government departments. over the past couple of years we played an important role in making the covidrelated and flood disaster payments in real time. we made sure that people received their money quickly, often on weekends and outside