higher assumed set of policy interest rates is associated with lower growth and lower than target inflation over the standard two - year horizon, but also with reduced risk of the really big fall in inflation and activity in year 4. graph 4 would we automatically select the first of these two possibilities purely on the basis that inflation is at target in two years'time? there would be a fair proportion of people who might select the second alternative, given the choice. of course, life is not quite as simple as the hypothetical choice i have concocted here. we don't know enough about the behaviour of asset prices, much less their linkages to the economy through the financial sector, to make such forecasts with any confidence. nor do we know much about how the dynamics might respond to monetary policy. so we cannot easily identify the optimal response to the situation. there would, as well, be significant communication issues associated with a policy which sought to reduce the risks associated with asset price developments, but which carried the side effect of slowing the economy. but despite the difficulties, it seems to me that thinking through the nature of risks posed by these asset price swings is helpful. policy should not rush to respond to every asset price movement that comes along. but a case might be made, on rare occasions, to adopt a policy of'least regret'so far as asset prices are concerned, if financial and macroeconomic stability were thought to be at risk. to do so would probably require an acceptance of a longer time horizon for inflation targets, and an acceptance of a bit more short - term deviation from the central point of the target. these issues remain unresolved among theorists and practitioners of monetary policy. there will be a good deal of further discussion about them in the period ahead. conclusion inflation targeting has been a successful model for monetary policy in australia. it has been associated with lower, less variable inflation, and better and less variable economic growth. while i would not claim that improved overall economic performance has been entirely due to the adoption of inflation targeting, i do claim that this approach to policy has made a significant contribution. for discussion of these issues in more detail, see claudio borio and philip lowe ( 2002 ),'asset prices, financial and monetary stability : exploring the nexus ', bis working paper no. 114, july – available at http : / / www. bis. org / publ / work114. htm. inflation targeting allows a considerable degree of short - term flexibility for

inside our regulatory perimeter. but in the meantime, we are consulting on some issues that we do have oversight of – our regulation of card payment systems and the role of surcharging. we expect the payments system board to consider and respond to this consultation in the first half of next year. in addition to consulting on the regulatory settings, we are also investing significantly in our systems and technology to keep pace with rapid technological changes, the growing use of digital payments and challenging security environment. the train tracks now need some maintenance. ultimately, we need to maintain a modern technological framework that supports our operational and strategic objectives. these initiatives will modernise the infrastructure that powers our nation ’ s payments and banking systems and allows money to move around the economy in a safe, efficient, and reliable way. closing remarks the rba has a pivotal role in promoting the economic stability and prosperity of australia. we are currently facing significant challenges posed by persistent inflation, shifting geopolitical dynamics and the rapid pace of technological change. yet, these challenges also present us with opportunities to innovate and adapt. our transformation agenda is not simply a response to current pressures ; it is a proactive approach designed to meet the needs of the australian economy and people today and well into the future. by enhancing our decision - making processes, embracing transparency, and engaging with diverse perspectives, we are positioning ourselves to navigate the complexities of the modern economy effectively. i look forward to taking your questions. r e s e r v e b a n k o f au s t r a l i a endnotes * i am grateful to meredith beechey - osterholm, samuel evangelinos, michelle lewis, michelle wright and jono vandenberg for excellent assistance with this speech. the costs of high inflation | speeches | rba