banks suggests they are planning for further issuance of bonds as they prepare for the roll - off of the first tranche of $ 76 billion of the tff between april and september this year. however, conditions in global bond markets have been strained recently following the failure of silicon valley bank in the united states. volatility in australian financial markets has picked up but markets are still functioning and, most importantly, australian banks are unquestionably strong – the banks ’ capital and liquidity positions are well above apra ’ s regulatory requirements. banks are already well advanced on their bond issuance plans for the year and could defer their bond issuance for a while. even if markets remain strained for a time, australian banks ’ issuance will continue to benefit from the strength of their balance sheets. as loans from the tff mature and are replaced with funding at higher cost, this will tend to push up banks ’ funding costs. the tff accounted for around 5 per cent of banks ’ overall funding at its peak. however, much of the funding was hedged, either by issuing term - matched fixed - rate mortgages or by using derivatives to convert the fixed rate tff payments back to floating rates. hence, the rise in the cash rate and interest rates more broadly has already had some effect on the cost of banks ’ funding from the tff. inflation targeting in australia it was 30 years ago this month when the bank first raised the concept of inflation targeting in a speech by then governor bernie fraser. his description closely matches the formulation that is used now – namely, a flexible medium - term inflation target whereby the bank aims to keep inflation within the range of 2 – 3 per cent on average over time. [ 3 ] currently, the bank is focused on bringing inflation back down to the target range. high inflation imposes a significant burden on the finances of all australians. the rise in interest rates, which is needed to rein in inflation, imposes an extra burden on mortgage holders, but that burden will be higher still if we don ’ t bring inflation down in a timely manner. the transmission of tighter monetary policy through to economic activity and inflation takes time. monetary policy affects the spending and investment of businesses and households with a lag. in turn, those changes in demand take time to have their full effect on the setting of prices and wages. these lags mean that central banks need to set monetary policy with a view to the future when it will be having its strongest effects

reserves in china. i expect that, as the chinese capital account is liberalised, the financial relationship between our two countries will deepen further. as we know from our own experience in australia, the journey of financial liberalisation is a difficult one, but it is one that is well worth undertaking. as i have said on a number of previous occasions, the internationalisation of the rmb and the associated capital http : / / www. rba. gov. au / speeches / 2017 / sp - gov - 2017 - 09 - 08. html 2 / 3 9 / 8 / 2017 remarks at the bank of china sydney branch's 75th anniversary celebration dinner | speeches | rba account liberalisation in china is likely to be one of the biggest forces shaping the global financial system over the next decade or so. the bank of china will help australia be part of that. finally, again, i would like to congratulate the bank of china on the occasion of the 75th anniversary of establishing a branch in australia. the story of how the branch was established is one of resilience and friendship. in 1942 there was a hope that granting the bank of china a banking licence would help build ties between our two countries. this hope has been realised. our hope today is that the same will be true for the next 75 years. thank you. © reserve bank of australia, 2001 – 2017. all rights reserved. http : / / www. rba. gov. au / speeches / 2017 / sp - gov - 2017 - 09 - 08. html 3 / 3