in fact, about 45 per cent of the time it has been outside the 2 to 3 per cent range, and we have not regarded this as a failure of policy. since our objective is to achieve an average inflation rate, there are multiple paths for inflation which are consistent with meeting our medium - term objective. we wish to choose the one which best satisfies the other obligations contained in our act, which i summarise as achieving sustainable growth in income and employment. we are not simplistically committed to achieving the minimum possible variability in the inflation rate, or even hitting the target at some fixed period ahead, such as two years. another approach sometimes put to us is to say that we should raise interest rates if, and only if, our forecast for inflation is above 3 per cent, and lower them if, and only if, it is below 2 per cent. again, this is a misinterpretation of how the system works. it also ignores the complications and uncertainties involved in economic forecasting. the forecast horizon relevant for policy today is at least two, or even three, years. we can be relatively confident about forecasts for the first half of that horizon, as much of what is going to happen over that period is already set in place. but we can be less confident about the forecasts for the second half. the situation is particularly uncertain when, as is the case at present, the direction of inflation is expected to change during the forecast period. since this type of forecast is so hard to make, we, like a number of other central banks, do not wish to lead the public to believe we can do this with much precision. in fact, we tend to appeal to the balance of risks around the central forecast in order to convey our message. in last month ’ s quarterly statement we said that the balance of risks was shifting to the upside, which was meant to indicate that inflation was on an upward trajectory through the course of the second year. we also drew attention to the fact that domestic price pressures were increasing, as shown by the fact that the rate of increase in the prices of ‘ non - internationally traded goods and services ’ had increased from 2 per cent to 4 per cent over the past few years. that does not mean that inflation will rise to 4 per cent once the exchange rate effects have worn off, but at least a significant part of the economy will be influenced by this figure. in summary, i want to assure the committee

that the bank remains committed to the inflation targeting framework and that the decisions taken over the past 18 months have been fully consistent with that framework. it does not seem plausible to us to argue that the bank could have been confident of meeting its inflation commitments if interest rates had been held at 30 - year lows in the face of the pick up in the international and domestic economies that is currently under way. finally, let me end by updating you on a few developments in the payments policy reforms. since we last met, the challenges brought against the reserve bank ’ s reforms to credit card schemes by mastercard and visa were dismissed by the federal court. both schemes subsequently appealed, but visa has withdrawn its appeal. the new interchange fees for bankcard, mastercard and visa came into effect at the end of october, almost halving the fees. the reserve bank is monitoring the flow through of this to merchant service fees. the data are still being gathered, but anecdotal evidence suggests that merchants are starting to see a reduction in the merchant service fees they pay to banks. there have been several developments in other payments streams, and i will be happy to answer questions on those when they arise, but i am aware that i have already taken a fair amount of your time, so i will finish at this point.