philip lowe : opening statement - house of representatives standing committee on economics opening statement by mr philip lowe, governor of the reserve bank of australia, to the house of representatives standing committee on economics, canberra, 17 february 2023. * * * good morning chair and members of the committee. thank you for holding this hearing. last week, the reserve bank board increased interest rates by a further 25 basis points. this brings the cumulative increase in interest rates since may last year to 3¼ percentage points, with the cash rate target currently standing at 3. 35 per cent. i would like to begin today by discussing why the increase in interest rates has been necessary and the outlook for the next couple of years. high inflation and interest rates at its core, the rise in interest rates has been required to make sure that the current period of high inflation is only temporary. this is our job as australia's central bank. in the december quarter, the inflation rate reached 7. 8 per cent. this is the highest rate since 1990. the inflationary pressures were broadly based, with the prices of almost three - quarters of the items in the cpi basket increasing by more than 4 per cent last year. in underlying terms, the inflation rate reached 6. 9 per cent in the december quarter. again, this is the highest rate in a number of decades and it is higher than we were expecting just a few months ago. high inflation is damaging and corrosive. it hurts people, puts pressure on household budgets and erodes the value of people's savings. it increases inequality and hurts people on low incomes the most. high inflation also damages longer - term economic performance, making the environment uncertain for planning and investing. and if inflation does become ingrained in people's expectations, bringing it back down again is very costly. history teaches us that once inflation becomes ingrained the end result is even higher interest rates and even greater unemployment to bring inflation back down. it would be dangerous, indeed, not to contain and reverse this period of high inflation. this episode of high inflation has its origins mainly in developments on the supply side but, over time, demand - side factors have become more prominent. it emerged in the wake of the covid supply chain disruptions and russia's invasion of ukraine, and also strong domestic demand due to the bounce - back from covid and the large policy stimulus during the pandemic. 1 / 5 bis - central bankers'speeches most advanced economies are in a similar

over the years since the global financial crisis. they are all now more focussed on housing lending and some are pulling back from wealth management and international operations. finally, it could also be argued that a large bank is, by its nature, more complex and hence more difficult to supervise than a set of smaller banks. the academic literature doesn ’ t provide much guidance on which of these views is likely to be of 4 / 9 bis central bankers'speeches more relevance for australia. but is there anything we can say from experience over the past couple of decades since deregulation? has increasing competition from new entrants had an impact on financial stability? has the concentration of the system resulted in concerns about financial stability? i will take both these issues in turn. the issue of competition in australia ’ s banking system has generated a lot of interest. there have been a myriad of reviews and inquiries over the years. indeed, another inquiry into competition in the financial system, undertaken by the productivity commission, has just kicked off. and the australian competition and consumer commission has recently been tasked with keeping a watching brief on competition in the financial system. the bank supports the productivity commission ’ s work on competition. but in the context of what competition might mean for financial stability, it is worth making three points. first, concentration of itself does not necessarily imply a lack of competition. indeed, indicators of market structure such as measures of concentration are not regarded as a very accurate measure of competition. in principle, four large banks could still compete very actively among themselves. so if you have a concern that competition could lead to financial instability, having a concentrated system will not necessarily address the issue. second, competition tends to be pro - cyclical. competition on the lending side tends to hot up during the good times. lending for housing, for example, has been pretty competitive over the past few years. in tougher times, however, competition for some types of funding, particularly more stable types, tends to increase. post - crisis, for example, banks looked to increase the amount of deposit funding relative to wholesale funding, increasing competition for deposits, and in particular, term deposits. regulators therefore need to be aware of this and take it into account when considering financial stability. third, at least some sectors of the market do appear to be contestable, as demonstrated by the impact that new entrants have periodically had on the competitive landscape. the arrival of the mortgage originators in the 1990s, for example, resulted in