February Monetary Policy Statement and OCR

Adrian Orr:

Kia orana tatou katoa toa, tēnā koutou katoa. Welcome to Te Pūtea Matua. Today, the Monetary Policy Committee reduced the Official Cash Rate by 50 basis points. That takes it to 3.75% and reflects the fact that inflation continues to abate annual consumer price. Inflation is near the midpoint of the Monetary Policy Committee's 1 to 3% target band and New Zealand firm's inflation expectations are at target and core inflation continues to decline towards the target midpoint. This is a very positive position for the Monetary Policy Committee. The economic outlook is consistent with inflation remaining in the band over the medium term and that is giving the committee confidence to continue lowering the Official Cash Rate activity in New Zealand is picking up. However, spare capacity in the economy means that domestic inflation pressures will continue to ease price and wage setting behaviours are adapting to the low inflation environment and the price of imports has fallen further.

Helping headline CPI inflation to remain low, this economic growth is expected to continue over 2025. Lower interest rates will encourage spending, although of course elevated global economic uncertainty is expected to weigh on business investment decisions. Higher prices for some of our key commodity exports and the lower exchange rate will increase export revenues into New Zealand and employment growth is expected to pick up in the second half of the year following the growth in domestic activity. Globally economic growth is expected to remain subdued in the near term geopolitics, including uncertainty about trade barriers is likely to weaken. Global economic growth activity is also likely to remain reasonably fragile over the medium term given the increasing geo economic fragmentation that is occurring. Consumer price inflation in New Zealand is expected to be a little noisy over the near term that as usual, but remain within the band and that is due to a lower exchange rate and higher petrol prices. Some of those near term price pressures that we see, nevertheless, the committee of whom many we are fully represented in the room today are very well placed to maintain price stability. Having consumer price inflation close to the middle of the target ban puts us in the best position to respond to future inflation shocks. As we've said before, if economic conditions continue to evolve as projected, the committee has scope to lower the OCR further during 2025. Kia ora, thank you very much.

Media questions

Media:

Thank you. Matthew Brockett from Bloomberg. Could you perhaps just give us a little more on where you go to from here? Are you expecting to slow down with your rate cuts to move in 25 point steps or is a 50 point move still on the table?

Adrian Orr:

Yeah, thank you. So we put a forward path in our economic outlook and again, for those that are on television, should someone have been stuck on the wrong channel, do have a look at the monetary policy statement in there. We always provide what we call a forward path conditional on the economy evolving as discussed in this document, in this document, we are looking at lowering the official cash rate a little bit quicker than what we projected back in November, but that's around 50 basis points by mid this year around July. And in the document that comes broadly in 2 25 basis point steps, it doesn't stop there. We have our projection of the OCR being around 3% by year end.

Media:

And if you do slow the pace of your easing, could you speak to some of the reasons behind that is you've mentioned uncertainties around global trade policies. Would that be one of the reasons?

Adrian Orr:

Not so much. I mean we are well poised to deal with whatever the next unanticipated shock is really. It's saying that we feel that inflation is subsiding core price inflation is still above the midpoint and we are just easing with more regular graduation from here. But through it all economic growth is positive around the two and a half percent annual employment growth is picking back up, but inflation and the spare capacity is slowly easing.

Media:

Lucy from Reuters, we obviously have GDP data out at the end of December. That was worse than we expected. How much has that played into the decision today and the change to the OCR track lower?

Adrian Orr:

Yeah, I'll let Paul Conway, our chief economist talk about the excitement of official GDP statistics.

Paul Conway:

Thank you Adrian and Lucy. And yeah, it has been quite an exciting ride for those of us focused on GDP. So the revisions were very large this time around and what they meant was higher capacity pressures than we were first led to believe over 2023 and early 2024. And that was actually more consistent with inflation dynamics in the economy. So it sort of made sense that relationship between output capacity pressures and underlying inflation sort of snapped into shape for us. And then of course we had a bigger downward revision in GDP in the middle of this year, but net out the back of all of that and measure of the output gap was slightly more negative than in November, partly because of the revisions, but it hasn't made a huge impact on the forward path for capacity pressures in the economy. So it hasn't been a major driver of that change in the OCR track.

Media:

So do you want to just talk to what were the significant drivers of the changes in the OCR track?

Adrian Orr:

Yeah, so what we're looking at here is an economy that has the euphemism significant spare capacity. It means that it is growing slower than the potential growth rate and it means that work and investment activity is below what it could happen, what it could maintain without inflation. So we still have downward pressure on inflation that has been basically the same since last November. It's three shades of grey. Looking at the projections ahead, they've been remarkably similar. What Paul was saying was we, the central bank was really discounting the previous GDP material a lot because we saw far more inflation and pressure in the economy than what the official stats GDP stats were saying over the period 2024. We moved quite quickly when the high frequencies data started to decline in mid 2024 and that has proved correct. We were prudent to remain cautious as opposed to jump to the GDP status and then we took the risk of moving with the higher frequency data as we started seeing that come off. So general story is very much the same regarding the economic drivers and the inflation outcome and we've been very pleased that that has been the case. In fact over the last 18 months it has played out broadly as we have anticipated in part because we have been touch wood, the absence of major global shocks.

Media:

And just to clarify, you said you were expecting two cuts by July. The track kind of indicates a cut in April and a cut in May. Is that how the market will be reading it?

Adrian Orr:

I would assume so. That's right. The conditioner subject to the economy panning out as anticipated in this document.

Media:

Thanks Tom. AKA from the Post. I mean looking at the sort of the core economic predictions here, I mean if anything they might suggest A to interest rate cuts. I mean GDP growth is really barely tweaked and unemployment forecast from November hardly changed. The only sort of significant change in that core economic metrics is actually an increase in expected inflation this year. Yet we have the OCR track moving in the opposite direction to meet the market. I mean in retrospect, was the November OCR track perhaps a little bit more conservative than needed or what are we to make of those things moving slightly different directions?

Adrian Orr:

I would say the differences you just pointed out would not be noticeable from this distance. The OCR track is broadly well within any confidence interval of what we said in November. In November we had the Monetary Policy Official Cash rRate reaching 3% by about the end of this year, early next year and that's what it's doing now. The other part is we've moved on, we've seen more data, we've got more confident relative to what we had in November and that always that confidence will always grow with us.

Paul Conway:

Can I please make the point also that our projections are what we call endogenous. So if we hadn't had that tweak downwards in the OCR, then our growth path would be more different to what was there in November. So it's not like we just move the OCR path that kind of moves the whole construction around how we we're measuring the economy. So it all is consistent. Absolutely.

Media:

Hi Dan Broskill from Interest.co.nz. Nice to see you after a long time.

Adrian Orr:

It was a good summer holiday.

Media:

Yeah, yeah, I had one as well. I don't blame you. I was hoping you could speak a little bit to the balance of risks in this forecast. I know that by definition technical forecasts are balanced, but whether you could do some sort of a qualitative assessment of whether there's more risk on the downside needing more cuts or more risk on the upside needing to slow.

Adrian Orr:

Yeah, no great question and without doubt you're spot on. We provide the medium path we provide the one where we have gained consensus across the committee and around that we spend a lot, most of our time writing words about this may never happen, which is our record of the meeting around the risks. I think the easiest way to think about the risks we see in this document is more about the near term and the longer term. In the near term we've got an 0.3% GDP growth figure for the December quarter that's passed. We know the volatility in that GDP data. We've got a 0.6 for the quarter we're currently standing in. One risk is that it takes longer to get that plus point something because we are predicting we are past a turning point always really, really difficult in economic activity. The medium term, slightly longer term risks are related to first of all of course shock risk.

We're in the middle of this geo-economic fragmentation. We don't know what may happen with regard to tariff, but we know that it is going to slow potential global economic growth and that at the moment we've only got a pretty modest adjustment to investment confidence in here. We would have to look at whatever happened when it happens. The other part is that's one thing to the negative. The other part is generally once economies turn and the people get their tail up, you don't see a smooth two and a half percent growth rate going forward. You may see actually faster growth over the second half of this year once confidence is back more. I've spent seven years being told off of being poor at forecasting house prizes or housing activity. We've got a very modest growth in that and we've got still very constrained consumer spending. So I'd say in the near term it may take a little bit longer. People want to see other people spending before they do and then in the medium term it could come back quicker.

Media:

You've talked in the past about having this idea of least regrets. I'm wondering if you're still using that thinking framework and how it might apply in this economic context.

Adrian Orr:

So for this decision the least regrets, fantastic questions. The least regrets one is when you're really staring into the abyss of significant uncertainty, that's not this forecast. So there was really us thinking about what is the consensus, medium term projection, what are some risks? None of them are making us have to make a significant move left or so. Even if we played the mental exercise, if we had to buy insurance today, what would be insuring against? And that's unclear. In other words, you're in a pretty good position. I don't know how you'd buy insurance against future possible tariffs or insurance against faster than usual economic growth. So what's sitting in this projection really is an economy where the exchange rate is floating somewhere around fair value where interest rates are broadly coming back to neutral where the inflation rate is back within its target band and it's a benign period for a central bank decision framework. Of course something will happen.

Karen Silk:

And the thing to really think about and the thing the committee talked about was having the CPI close to the midpoint of our target band sets us in a position to best respond to any future shocks that might happen. So if you want to be able to respond to those uncertainties and there are significant uncertainties sitting out there, then we need to be, our best position is to be as close as we can to that midpoint of the target.

Adrian Orr:

And I'll just add one more thing and you can see that this was an exciting things that we were chatting about. We have bought ourselves a little bit of insurance in some sense the official cash rate is at 3.75%. That would be at the high end of a neutral range. We haven't rushed to three or something now why? Because domestic inflation or non tradable inflation is still elevated. It's just that we're confident it's going to keep declining. So if we were rushing to neutral with domestic inflation, north of 3% people would've been doubting our commitment to our target.

Paul Conway:

It was 4 and a half in the last CPI outturn that which

Adrian Orr:

Is the September quarter last year. Yeah,

Paul Conway:

Core inflation measures

Adrian Orr:

December, December quarter, September. Yeah, December or December, sorry, Q4 stats. Brilliant.

Media:

Jana Tini from the Herald. I'm just interested in the impact on mortgage rates. I think that's probably what people at home are interested in. On the one hand we have slightly faster easing, but on the other hand we have some upward pressure on global wholesale rates. So I'm just wondering how those two things offset and where you see both shorter term and longer term mortgage rates going in the next couple of months.

Karen Silk:

Yeah, you are right. So the OCR has the greatest impact that will have is actually on those short-term rates. So a falling OCR should see short-term rates start to come lower and will continue to come to move lower as you move out across that yield curve. It's very much influenced by what's happening with global rates. And so what we've seen there is market reaction to US policies reflecting in US interest rates and strength of that economy influencing higher longer term rates. And they're also taking into account just the higher levels of sovereign debt that sit out there as well. And so that's having that influence on the longer term. So from here we would expect to see the OCR continuing to have influence on those shorter term rates. So that's sub one year in particular part of the market. But I would say that the expectation of the longer term rates coming substantially lower is probably a lot less. Now obviously that depends on the funding costs for banks and that's again being influenced by what's going on in those global rates.

Media:

So when you say longer term rates, are you thinking longer than one year or longer? Longer.

Karen Silk:

When we are thinking around that 2 to 5, 2 to 5 year.

Adrian Orr:

Five year, 10 year US interest rates have been rising based around all the things that we've been experiencing, ongoing growth but also concerns around total debt et cetera. That's an important part of global funding costs. In here we have, and I'm going to warm Rebecca up so she can tell me if I've got it right or not, but sitting in here is an effective retail interest rate that does not shift significantly over the forecast period even though the official cash rate continues to decline. And that is because of exactly these factors. Now don't get upset listeners, this is putting downward pressure on mortgage interest rates. We expect to see that we have already seen some quite a lot in advance and also given that we talked about a similar profile some time back, we've had that down. What we will see is increased competition between banks as demand for lending growth because private sector credit growth has been incredibly slow and the banks will be sniffing and hunting and who knows, some of the future cuts to the mortgage rates may even come out of margins.

Karen Silk:

So the average, just to give you those numbers, the average stock rate for mortgages today we think is around 6.2. Over the next 12 months we'd see that drop to about 5.7. So there is some room further for that come lower and you've got roughly 50% of mortgages repricing over the next six months.

Media:

Hi Cushla here from One News. I've just got some questions from my colleague Katie Bradford, do you think the cost of living crisis is now over?

Adrian Orr:

No, the challenge with the cost of living crisis is we're saying inflation is low but the price levels are still high. When you are going into the shop, you're not going to get a discount because inflation is now 2%. You're just not going to have to pay a significant more in a year's time. That's what we're talking about and in this document and we really understand the cost of activity in this economy and globally is still high because of past inflation

Media:

And we've seen all major banks drop rates within minutes of your announcement, how much on average will people save on their mortgages do you think?

Adrian Orr:

We'd need to know what their mortgage is probably. I can't do that calculation off the top.

Media:

And is the amount of pain the economy suffered worth getting to this point?

Adrian Orr:

Has, sorry,

Media:

Has is the amount of pain the economy has suffered worth getting to this point?

Adrian Orr:

For us at the central bank we target low and stable inflation. That is the best and only thing we can do to maximise economic wellbeing. So job done or job continuing to be done by the central bank embedded in here is in some ways the good things that can happen once you back in low and stable inflation, economic growth will be picking up, employment growth will be picking up. That would not happen if high and variable inflation had remained.

Media:

Governor, Luke Malpass from The Post. Firstly I note there was some comments in the MPS about around 90% of new mortgage flows are fixed for one year or less in the history of interest rate targeting the Reserve Bank. Is that about the highest level you've just about seen?

Karen Silk:

I can give my view.

Adrian Orr:

Your view. Should I leave the room and give my view and then you come in, we'll see how it goes. Go Karen, I won't listen.

Karen Silk:

No, we'll say the same thing. It's very high. It is very high. I don't think I've seen it higher than that since fixed interest rates actually started to evolve in the early two thousands. So very quickly moved into that one to two year over two or three years heavily weighted towards that and it could be as high as 80% the other way. So this is very high

Adrian Orr:

In terms it's been rational. People have gone to the lower price and they believe the credible central bank saying inflation is going to come down and future interest rates will be lower. So that has been what you would expect to see. The challenge now is as people refi or if they start going longer term, they're going to get good advice from the banks. They're going to have to work their way through what Janae was talking about. This end's coming down, that end's going up. Do they sit there forever or do they grab what they can? Yeah,

Media:

Well I was just wondering, it seems like even highly rational behaviour but a very high percentage of highly rational behaviour.

Adrian Orr:

Can we also just say remember during this period lending growth has been extremely low. Yeah. So we need to remember that as well. The writing of new mortgages has been very low because even if you're in a 90 day floating mortgage rate, that was still uncomfortable.

Media:

And just on another matter, I noticed that you said that there'd been some external forecasts or research done that some of the tariff business around the world could knock about a percentage point off New Zealand's trading partner growth. I was just wondering if you can give us a kind of a real world sense of if that would to occur what that would look like in New Zealand.

Paul Conway:

Tariffs are complex, so the effects of tariffs on the New Zealand economy is a complicated thing that we need to see to really understand. So it's easier for us to say just based on modelling that other people have done globally on what the sort of global impacts would be. And that's, as you said, a one percentage point reduction in global GDP growth at its peak. We do have papers out there sort of suggesting what that would mean in terms of GDP growth in New Zealand, but we've reframed from putting that number in the document because we think there's a lot of uncertainty about it currently. But it's clear tariffs are negative for growth both globally and here in New Zealand. And the effect on inflation is uncertain.

Adrian Orr:

And just again, near term, long term is an issue to think about near term. First of all, what was the tariff? Who was impacted and what was the initial reactions? You could do scenarios where for example, China gets blocked out of trading elsewhere and we end up being the recipient of the dumping or excess goods. What's the immediate impact for us? Lower headline inflation. Longer term we can't trade with China and that would be upward pressure on inflation and global demand would be lower because of the production challenges that we've talked about. So the near term will be noisy, the medium term is less ambiguous. It's down for growth and upward pressure while other things unchanged for inflation.

Media:

Bernard Hickey for the kaka. Governor, I'm curious about Box A, which was very entertaining on the revisions to the GDP and in particular I told you there'd be a

Adrian Orr:

Reader, Paul,

Media:

I'm loving Box B too, but let's do this first Box A the middle of 2024. I'm trying to work out what happened to the economy when we went from 1.3% over potential to 1.7% under potential basically in less than 12 months. So four percentage points of what happened.

Adrian Orr:

A big part of what happened is they revised the history before that the most significant changes, the revisions have gone back three years. And so the level of economic activity by the time we got to mid 24 was a lot higher than what the stats department had been feeding US users of statistics suddenly. And that helped explain why inflation domestic inflation pressures were so sticky. So the level went up and then you've seen the actual, the measures got refined and the GDP path that you're looking at now much better fits the mood and the higher frequency data that we were feeling and seeing in the economy. So if you reverse us up in May pre to seeing these revisions, we were really nervous about sticky inflation even though output was supposedly down. What it wasn't.

We were saying we're going to need to hold rates. We think we've got a real inflation expectation problem here. We were receiving a lot of criticism saying, can't you see how hard it is? And then once the high frequency data came in, we took the bet that that was giving us a better signal to get moving and quickly, sure enough, over time the GDP stat now has it. The other parts in there really is some spending didn't disappear, it just got significantly reallocated between sectors. The government consumption path has fundamentally changed, not necessarily in direction but in level a lot of investment that was initially ticked as private sector investment got added back onto government spending and that lifted the whole level of government spending. So not only levels but compositions have changed through that. What's our lesson? The one that we've always followed, look at as many ways of triangulating data to get the best possible here and now feel don't wait for five month old data. It's kind of like buying a reno. It's on the third recall, you get the best one and that's where we're at.

Paul Conway:

But it would be better if at national statistical data was more timely and less prone to revision.

Media:

Just looking at the forecasts and the assumptions with those projections. There's a comment here about government expenditure being still being assumed to decline as a share of the economy, reducing inflationary pressure but to a lesser extent than previously flawed. So what's going on there?

Adrian Orr:

Because that was the investment tail I just spoke about. So we've always had this spending path for a government set of GDP potential declining solely. So it's not adding to the inflation pressure that is still the case, but from a high level what has happened is they've taken investment that was initially ticked under private sector and put it in the government sector. Now that sounds like, oh that's really stupid, that should have been easy. But government's a contracting private sector to do a lot of the investment. It's a very complex trail for statistics New Zealand to work out who's the daddy for this

Paul Conway:

And the forecast there have, we've switched to hifu. So that's a big part of the difference there, but still declining, as you said, as a sharer of the economy.

Media:

Just a broad question to the governor, are you happy with stats nz? Would you like them to do better with things like monthly jobs? Monthly CPI and GDP?

Adrian Orr:

Oh, I'm very proud of what statistics New Zealand, other than what's been in the press all day, the last 48 hours, what they achieve with what they have. We are but one user, we work incredibly closely with statistics New Zealand, very right, very smart, but an almost impossible prioritisation task. They have to achieve what they are asked to achieve with what they get. So as exciting as shifting from quarterly to monthly, CPI may be for monetary policy, it's sitting on their long list of things to do what the things we would most like to see is not necessarily even monthly. CPI, it's a lot of our basic indices updated reweighted hedonic pricing a computer is worth $2,000 a year ago than what it is today, but what you get today for $2,000 is fundamentally different. These are the ways that statistics need to be updated. So we are constantly working with them at no point saying the beatings will continue until their morale improves. They need support. Would you like

Media:

Them to be better funded? Would it help you and them?

Media:

Yes, Giles Beckford Radio New Zealand. If the OCR neutral rate is around 3% broadly judging by your forecast track, is it then a case that your strategy is all things being equal and all orbits of wood being touched, that the cash rate would stay around that level for a prolonged period?

Adrian Orr:

That would be a beautiful world and the world of no future shocks, GDP nominal GDP growth would be running broadly at potential interest rates would be broadly neutral and the exchange rate would be broadly fair value. That's not too far from what this projection is. By the end of this calendar year, all other things unchanged. So it is period and it will better highlight, well what are the monetary policy is neutral on its impact on economic growth in the long term other than keeping things stable. It will much better highlight the need for the real side of the economy, the productivity, the investment, the innovation, all of that stuff to shine through rather than the volatility of or cyclical volatility of monetary policy.

Media:

Yes. Do either yourself or Paul have a view on what has been identified as be noir of the economy, which is low productivity growth

Adrian Orr:

That is the anchor or the bracelet around our ankle of the New Zealand economy? As long as we have a productivity growth as low as it is, then that means in an absolute terms we not growing and in a per capita or relative to global economies, we are feeling sad. So it's about long-term real growth, which is productivity and innovation.

Media:

So how does monetary policy respond to that?

Adrian Orr:

We do the same job, but we're doing it around a much slower growing economy rather than around a higher growing economy. The most stark example at the moment as easy would be say the United States and us both have an inflation problem. Both have been lowering their interest rates to below neutral to slow their economies, but their potential growth rate is up here. Ours was here to slow our economy, we had to take it to zero to slow their economy, they took it to 2% because the difference is productivity. So same task but around different levels of potential economic growth. It's kind of like driving the Humber or the Ferrari.

Paul Conway:

It's a speed limit on the economy. And just your first question, Giles, it's important to think of neutral as a band, a relatively uncertain band. And yes, that band has a midpoint, but as we get sort of closer to the band and within the band, it's really more about feeling our way than being really definitive about where neutral is or isn't.

Adrian Orr:

I need to update my vehicle examples. Sorry,

Media:

I guess a somewhat related question. I see that you're forecasting a further drop in business investment after a significant drop in the September quarter. I mean, are we just seeing a lag play out there or do you have any concern that there might be some darker phenomenon and I

Adrian Orr:

Suppose so in the near term it's the lag that you're talking about and we've got a little bit of an overlay in the next couple of quarters related to that global uncertainty. So we've got good indicators and strong confidence that it will pick up the PMI, the PSI, these short-term measures of activity and all of a lot of high frequency data saying investment will pick up, but it takes a lot of certainty to go and invest in a plant or a farm or whatever. So it's always a little bit of a lag there.

Media:

Okay, and just a basic question just for clarity, I guess. I mean are you actually seeing a tangible concrete turnaround in the economy now as yet?

Adrian Orr:

Yes. So that's why we have the 0.3 for the GDP quarter, we've come through and a 0.6 for the one we're sitting here and a lot of it is just coming through that high frequency data. We won't get GDP for those figures for.

Media:

Okay. What sort of metrics is it that you're looking at in that?

Paul Conway:

Yeah, sure. There's a bunch of high frequency data. I think we've written about it actually in past NPSs. The PMI, the manufacturing index is important. The services index is important. We've got good measures of spending in the economy, expectations around various factors. So there's a broad range of high frequency data, which we actually use to now cast where our GDP predictions are for the very near term and there's uncertainty around all of that. But we are seeing a pickup in that data, which is reassuring

Adrian Orr:

Time for two more questions. That's not to say people are feeling fantastic. It's going back to that price level story rather than rates of growth and the growth rates we are talking about still only around that low potential growth rate, the two and a half percent per annum type economic growth.

Media:

Lucy from Reuters, again, if the New Zealand dollar continues to slide, is that a concern for inflation or are the benefits from higher prices for farmers kind of offsetting any concerns you have

Adrian Orr:

There? Yes, so for us, this country has chosen to choose an inflation rates through the inflation target and to do that it means that we have to use the interest rate. The residual will always be the exchange rate. You can't control all three. So that's what we have to remember. Some countries choose other ones, they choose a fixed exchange rate and then have variable interest rates. For us, we just have to play the game as we see it for the exchange rate, it can impact near term prices. The price of imports can be impacted up or down depending on the role of the exchange rate. But that's near term, that's not longer term inflation. So we'll just have to see where it goes at the moment. Given our terms of trade meat and dairy in particular and an exchange rate around fair value, it's been a very welcome positive income impulse into the country and we expect that to be pretty supported throughout the course of the share because of the things that are holding those prices

Media:

Up. Box B is

Adrian Orr:

Even better than A.

Media:

Must see TV and particularly the analytical note which is forthcoming on the sensitivity of nont tradables inflation to monetary policy. The less sensitive bucket includes things like rates administered prices. How much of a concern is it for you that these administered prices mostly by governments and local government are now contributing a really good chunk? I see nearly one and a half percent percentage points per quarter to inflation.

Adrian Orr:

I'm really pleased you bring that up. I mean one of the great benefits of low inflation is kind of like the tide going out. You can see now what's driving some of these things. The tide has gone out and what has left there really are these administrative prices, are they worrying us? It is just a fact of life we have to live with. In the near term, these things are happening. If they create generalised inflation, then that would mean you'd have to have higher than otherwise interest rates and lower than otherwise inflation in other parts of the economy to achieve it. One assumes that won't happen because that would mean you've got no one to rate over time. So it's in the near term it's happening. There's a lot of catch up investment, but in a low inflation environment they're going to stick out.

Media:

Just finally on the DTIs and lending growth through this year, do you have any views on whether the DTIs kicking in this year, which mortgage brokers are reporting is happening now will constrain the economy's growth?

Adrian Orr:

Yeah, we're very, very pleased to have got the DTIs implemented, implemented during a period when they were non-binding and then that gives us the comfort that there's some seat built on with plenty of room to move and play in the backseat, but you're not going to go flying through the windscreen like the last housing price cycle on the way through. It will act as a good moderation for lending behaviours. Banks have always done it, but at the peak of frothiness, banks get a little bit loose on it and that is a big part of the debt issue and the negative equity issue that we've seen from the last lending cycle. They're indifferent to the level of interest rates. It's this excitement, the important part as well. It's further buffered by the loan to value ratio, so probability of getting into trouble and the cost of if you're in trouble will both be significantly lowered. No one will like us though.

Media:

Hi Dan, from interest again, if I can take us out, just looking at the very long-term view, I think your track terminates at 3.1% or something. Economists are quite interested in that, asking whether that is a signal of a higher probability of going to 360% chance of cutting all the way to three or is that a signal that perhaps you are reluctant to go below that level unless you really have to, if you can just tack on a little extra. Do you plan to keep moving in 50 basis point moves even though your track suggests maybe 25?

Adrian Orr:

I would like to think that if these predictions pan out as it is, once we get down around that level, we're broadly at neutral and inflation's at target and we're not having to do much at all to the level of the official cash rate. Of course we'll be laser-like focused even over the summer periods, but it's one where you're back into a more stable inflation and stable interest rate environment. That's just simply the outcome of the modelling framework. It says, Hey, you are there.

Cool. Alright. Thank you very, very much everyone for your interest in the boxes, the forthcoming information. And I also do just want to say, coming in March 6 and 7, the Reserve Bank is hosting an International Economic Conference. It will be live streamed, it will be it have 2 days of cut and thrust excitement for you Bernard. We've got some significant international global experts coming with us. Ben Bernanke, Professor Ben Bernanke, sorry, Ben will be here with us for the two days. We've got lots of stars including very, very smart people from

Paul Conway:

And Catherine Mann is coming as well. MPC member at the BOE. Very, very accomplished international economist.

Adrian Orr:

Killed it.

Paul Conway:

Thank you.