remains vigilant to upside risks to inflation and noted that policy will need to remain sufficiently restrictive until it is confident that inflation is moving sustainably towards the target range. prior to our decision, markets had brought forward their expectations of a rate cut following inflation outcomes in the united states and the june quarter cpi in australia coming in a bit lower than expected. then volatility in international financial markets resulted in further declines in interest rate expectations. financial markets are still pricing in a rate cut by the end of the year. the board's message, though, was that it is premature to be thinking about rate cuts. inflation is still too high and, in underlying terms, is not expected to be back in the top of the band until the end of next year. circumstances may change, of course, and the outlook is uncertain. but based on what the board knows at present, it does not expect that it will be in a position to cut rates in the near term. i understand that this is not what many households want to hear. those with mortgages are feeling the squeeze on their cash flows from the increase in interest rates over the 2 / 4 bis - central bankers'speeches past couple of years. businesses too are facing higher borrowing costs. but the alternative of higher inflation for longer is much worse. inflation has not been this high for a few decades and i think many people have forgotten how bad it is – some younger people will not have experienced high inflation at all. there is a reason why there is so much talk about the cost of living – high inflation hurts everyone. it reduces what people can buy with their wages, erodes the value of savings, and it disproportionately hurts those on low or fixed incomes. this is why it is imperative that we do what we need to ensure inflation returns to levels at which it is in the background again. economic outlook that said, the economic outlook remains highly uncertain. the rba published its most recent forecasts at the same time as we announced the monetary policy decision. as i noted earlier, the central forecasts are for inflation to return to the target range late in 2025. it is forecast to approach the midpoint of the target band in 2026. this is a slightly slower return to target than we were forecasting in may. it reflects a judgement that the gap between aggregate demand and supply in the economy is larger than previously thought. that is, even though growth in the economy has been weak,

most households to afford to service their loans. i take some comfort from the fact that arrears rates on mortgages remain low. even in western australia, where there has been a marked rise in unemployment and where house prices have fallen by around 10 per cent, arrears rates have risen to around 1½ per cent, which is not all that high compared with what we have seen in other countries in similar circumstances and earlier episodes in australia ’ s history. we have provided some information in the latest smp on interest rate resets on interest - only loans. these can see the required mortgage payments rise by nearly 30 – 40 per cent for some borrowers. there are a number of these loans whose interest - only periods expire this year. it is worth noting that there were about the same number of loans resetting last year too. our assessment is that there are quite a few mitigants which will allow these borrowers to cope with this increase in required payments, including the prevalence of offset accounts and the ability to refinance to a principal and interest loan with a lower interest rate. while some borrowers will clearly struggle with this, our expectation is that most will be able to handle the adjustment so that the overall effect on the economy should be small. 8 this switch away from interest - only loans should see a shift towards a higher share of scheduled principal repayments relative to unscheduled repayments for a time. we are seeing that in the data ( graph 8 ). it also implies faster debt amortisation, which may have implications for credit growth. 10 / 13 bis central bankers'speeches there is a risk of a further tightening in lending standards in the period ahead. this may have its largest effect on the amount of funds an individual household can borrow, more than the effect on the number of households that are eligible for a loan. this, in turn, means that credit growth may be slower than otherwise for a time. to me, that has more of an implication for house prices, than it does for the outlook for consumption. finally, in thinking about the resiliency of household balance sheets to higher interest rates, it is important to think about the environment in which interest rates would be rising. that environment is highly likely to be one where wages and household incomes are also growing faster than currently, improving the ability of households to afford higher mortgage repayments. one final risk that i would like to touch on is the related risk stemming from low wages