The first hostage to give evidence at the inquest into the Sydney siege has said he thought the Reserve Bank building across the road from the Lindt cafe was being robbed when he saw his manager Tori Johnson looking "nervous and scared" while talking to a customer.

I think we're in danger, I think the Reserve Bank is being robbed.  

Jarrod Morton-Hoffman

But once that customer pulled out a gun, donned a backpack, vest and a bandanna with Arabic script and told cafe staff and patrons to "sit the f... down", Jarrod Morton-Hoffman realised it was not the bank that was under attack.

Jarrod Morton-Hoffman told the inquest he initially thought the bank across the road was being robbed. Photo: Wolter Peeters

"[I realised] the danger was inside the cafe and not outside," the 20-year-old student told the inquest on Tuesday.

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Moments earlier, Mr Johnson had asked Mr Morton-Hoffman to lock the cafe doors.

"We're closed; tell the staff that everything's OK, we're safe," Mr Morton-Hoffman said Mr Johnson told him.

Hostages were forced to hold a flag at the cafe's windows during the siege. Photo: Twitter

He said Mr Johnson looked "frightened" and devoid of emotion, which was unusual, as he sat across from the customer, who he now knows to have been Man Haron Monis.

Mr Morton-Hoffman recalled that he went into the office to retrieve the keys and told two colleagues "something's wrong".

"I think we're in danger, I think the Reserve Bank is being robbed," he said.

Tori Johnson was killed in the siege in Martin Place.

Mr Morton-Hoffman said he slipped a Stanley knife into fellow staffer Joel Herat's apron and wrote a sign that said "closed".

He said as he came out of the office, the gunman announced: "This is an attack on Australia by the Islamic State. My brothers and I have bombs around the city.

"This is because of bombing in Iraq and Syria".

Tactical police storm the Lindt cafe in the early hours of the morning. Photo: Supplied

Monis instructed the hostages to put their phones and identification on a table and close their eyes, telling them if they complied they would be safe.

Monis then chose various hostages to stand up against the windows and glass doors. Mr Morton-Hoffman was given a flag with Arabic script, which he assumed was an Islamic State flag.

At one point he and Mr Herat held the flag together and whispered to each other. "I think one of us said it was stupid to hold up a flag," he said.

Joel Herat, Sydney siege hostage flees the cafe.

Mr Morton-Hoffman said Monis displayed a particular dislike for Mr Johnson, calling him "manager" rather than by his first name. He also referred to customer Louisa Hope as his "secretary" when instructing her to call police and ABC radio.

He said Monis wanted to talk to Tony Abbott live on radio and also to communicate to his "brothers" not to let off their bombs.

Monis questioned Mr Johnson about the cafe's entry and exit points and Mr Johnson said the emergency door could not be accessed from the outside and couldn't be locked from the inside.

Monis said: "If you're lying to me I'll shoot you."

Mr Morton-Hoffman said he formed the view Monis was a "lone wolf gunman" who was "ISIS-inspired with a political agenda".

However, he didn't believed he had bombs or brothers around the city.

Mr Morton-Hoffman said Monis was monitoring media coverage of the siege and he toned down talk of the bombs after hearing news reports that he didn't have an IS flag.

"He became fixated on [the flag] and abandoned the bomb talk," he said.

Later on Tuesday, the inquest heard two 000 calls Mr Morton-Hoffman made at the behest of Monis.

Remaining calm, Mr Morton-Hoffman cleverly answered the operator's question about how many gunman were in the cafe by emphasing the last syllable in anyone.

"He has not harmed anyone," Mr Morton-Hoffman said.

Monis insisted police officers move away from the cafe.

"He's going to shoot someone right now, can you please tell them to go away," Mr Morton-Hoffman said.

Asked how he felt during this call by counsel assisting Jeremy Gormly SC, Mr Morton-Hoffman said he was "scared" because it was a big responsibility.

"If I screwed up someone would have died," he said.

In a second call 25 minutes later, Monis demands all cars on Phillip Street be moved away.

Hostage Louisa Hope can be heard telling the operator, "He was about to shoot me and then the police moved in time. So please move [the cars] away. I don't want to die".

Mr Morton-Hoffman also relayed Monis's claim that he needed someone to come and collect the bombs so they didn't explode.

"I believe Monis said he has these two bombs on him but he doesn't want to blow them up and he needs the police to disarm them, to get them out of the building so we don't die."

Mr Morton-Hoffman said Monis wanted the hostages to call police and various media outlets on his behalf so investigators couldn't identify his voice.

He also revealed he was only at work that morning because he was covering the shift for a friend.

The inquest continues.