(Bloomberg) -- Australia’s central bank expects to launch a “holistic review” of the country’s retail payments regulation once reforms that allow it to regulate buy-now-pay-later and mobile wallet providers come into effect next year, Governor Michele Bullock said.

“This will be an opportunity to consult widely on current regulation as well as on areas where regulation might be required in the interests of safety, competition and efficiency,” Bullock said in a speech in Sydney on Tuesday. “This will help us to set our regulatory priorities in the expanded regulatory perimeter.”

The review is expected to focus on some specific issues, including:

  • Least-cost routing: Progress so far has been slow so formal regulation may be needed to get service providers to lower fees to merchants, Bullock said
  • Mobile wallets: Costs associated with these services remain opaque and payment service providers can face entry barriers
  • BNPL services: Formal regulation may be required to allow merchants to surcharge

“As part of the review, we look forward to engaging constructively with industry on these issues,” Bullock added.

The review is part of the RBA payment systems board’s strategic priorities for 2024 which also include strengthening the resilience of the country’s payments infrastructure.

Another priority is to “shape the future of money,” Bullock said, referring to a central bank digital currency. The RBA is now planning a project that will examine how different forms of digital money and infrastructure could support the development of tokenized asset markets in Australia, she added.

Responding to an audience question after her speech, Bullock reiterated that she was “still not convinced” about the use case for a retail CBDC, pointing out that tokenized assets are likely the next “sensible step.” 

In her final speech of the year, Bullock didn’t reference the economy or monetary policy, having left interest rates at a 12-year high of 4.35% last week. However, asked during the Q&A whether Australia was lagging the rest of the world in its fight against inflation, Bullock pushed back. 

“I don’t think we are falling behind at all,” Bullock said. “We are trying to make sure that we slow the economy enough to bring inflation down to our target band. We think we can do that in the next couple of years and we can do that while preserving the employment gains that we’ve won through the pandemic and coming out of the pandemic.” 

The remarks come as the RBA has moved cautiously in the current campaign with its 4.25 percentage points of hikes still 1 point below that delivered by the US and New Zealand. 

The impact of the RBA’s hikes is being felt the most by Australia’s heavily indebted households as surging borrowing costs force them to cut back on other discretionary spending. That was also reflected in the latest GDP reading for the three months to September when the economy surprisingly slowed.

Bullock acknowledged that it had been a “hard year” for people dealing with rising borrowing costs and inflation while expressing optimism that the situation will improve in 2024. 

Australia’s central bank meets next on Feb. 6 and by then will have had a chance to see the inflation reading for the final three months of this year to assess whether it needs to do more.

The RBA has signaled further tightening might be needed to cool inflation which remains well above its 2-3% target. Financial market pricing implies the RBA is now done with hikes, though the cash rate is expected to remain around current levels until late next year.

(Adds comments from Q&A and chart.)

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