2025 Commonwealth Bank Global Markets Conference

[Presenter Tim Kelleher (TK)]: Good morning or as they say in the land of the long white cloud kia ora, or hello, also, congratulations you've made it to day three, and the good news is we've saved the best for last all things Kiwi. 

My name is Tim Kelleher and I'm the head of Institutional FX sales for CBA in New Zealand. 

Today we are honoured to have as our speaker, Adam Richardson from the Reserve Bank of New Zealand. Adam was appointed director of financial markets in 2025. In this role, he leads the directorate responsible for the banks market operations, balance sheet management, and policy advice on domestic and international financial markets and international economies. Adam joined the Reserve Bank in 2007, has held a range of leadership roles in economics and financial markets. He was appointed an interim internal member of the monetary policy committee for a six-month term from March 2022. Most recently, Adam was a senior manager in the economics department helping to lead the directorate responsible for monetary policy and supporting the work of the Monetary Policy Committee. Earlier in his career, Adam worked as a markets economist at an international bank gaining experience in global financial markets. He's a CFA charter holder and holds an honours degree in the economics from the University of Otago. Adam, welcome to the stage.

[Speaker Adam Richardson (AR)]: So thanks Tim for the kind introduction. Also, just want to say thank you to CBA for having us here this year and organising such a great event. I understand how much goes into organising these types of events. So thank you for having us. Also just want to briefly, essentially give a shout out to my co-authors of the speech, so Chris Stevens and Finn Robertson at the RBNZ who have done the majority of the heavy lifting on this. 

So what I'm going to do today is talk through essentially the transmission of the cuts that we've made in the OCR since August last year into New Zealand financial markets. And then the plan is to leave plenty of time at the end for q and a. We can cover the topics that we delve into in the presentation here and then anything related to New Zealand monetary policy or financial markets.

So as most of you in this room will be aware, we've cut the OCR by 300 basis points since last August. OCR now sitting at 2.5% and I think it's sort of an apt time to kick the tyres on those cuts and assess essentially how they've passed through to markets over that time. 

Today I essentially want to make three key points. So one is that this transmission of those cuts is largely playing out as we had expected, but there are some, I guess, idiosyncrasies to this cycle. So most notably we've seen a rise in term premier and in long-term bond yields in New Zealand. And at the same time, as Nick alluded to in his introductory remarks, we've also seen some quite interesting behaviour on the cashflow channel side of things.

So essentially Kiwi's opting to float or fix it relatively short term and that sort of I guess had some influence on transmission. The other point though that I want to make is that while that cashflow channel is a very important and visible part of monetary policy transmission, we don't want to overemphasise it too much. So there are other potentially more important channels of policy transmission. And then the last thing I want to highlight is that in New Zealand international factors always play a large role in our financial conditions, but we have the tools that we need to set domestic monetary policy where it needs to be to ensure price stability. So yeah, let's dive into those points in a bit more detail. 

So to put us on the same page, what I'm going to do is sketch out deliberately simple model of the factors that drive retail interest rates in New Zealand. So for this room, maybe bear with me a little bit. For the first part, this is definitely going to be sort of bread and butter for you. Essentially you are the people that make this transmission happen, but hopefully that can sort of set up a broad framework, put us on the same footing for I guess the more nuanced discussion that will come later.

So I guess the first thing to note is that monetary policy works at its core. By shifting the interest rates that households and businesses face, we cut or increase the OCR that shifts the price of credit and we see households either bring forward or push out their spending. We see businesses change their investment decisions and the timing of those decisions, and that eventually flows through into demand into the economy and eventually inflation. And so, it's this channel the sort of, I guess what economists label, the Intertemporal substitution channel of monetary policy that plays one of the key roles in transmission. And I'll come back to that later I guess in the discussion when I talk through some other channels of transmission.

Now for New Zealanders or for households in particular, it's mortgage and deposit rates that are the key interest rate that they face. And in this I guess simple framework, what I'm going to do is focus largely on mortgage rates, but that's not to say that deposit rates aren't also an important sort of factor in monetary conditions. And in New Zealand generally New Zealanders opt for relatively short-term fix rates when they're I guess making their mortgage decisions. And so that means that a two year mortgage rate is a relatively good yardstick for proxying, I guess the current financial conditions faced by households. 

So as I said, here's a relatively simple decomposition of what goes into one of those two year mortgage rates. [Refers to figure 1 in the below slide deck] So we've got three key components in the blue bars here. You have wholesale interest rates. So we're this with a two year swap rate and that largely reflects I guess expectations of short-term interest rates plus a small premium. And then we have in the orange bars here what we've labelled the funding spread. So that's essentially the difference between banks, wholesale and retail funding costs and that wholesale interest rate. And then the third bar, so the pink bars there essentially is the residual in this model, what we've labelled the markup. And so that's a broad proxy for I guess the gross margin that banks have on mortgage lending. 

And so if we sort of break down the changes that we see in this two year rate, we tend to see that most of the variability occurs in the blue bars. So most of the time it's expectations of short-term interest rates that are pushing around the mortgage rates that households face. And in normal times the other two factors. So that funding spread and the markup tend to make up a relatively small, I guess, proportion of the variability in this interest rate.

But that does change during crisis episodes most notably. So when we see I guess situations like the GFC or the emergence of the COVID pandemic, we tend to see particularly the orange bars here, spike higher. And then another important element of this is that our policy response to such episodes can also drive these spreads. So most notably here during the, I guess post COVID period fiscal policy along with our monetary policy response and a MP tools drove the funding spread lower over the past few years. 

So I guess with that simple model in place, let's dive into a few of the factors of monetary policy transmission that have been quite unique to this cycle. So maybe just before I move on from this chart, one thing to highlight is that marginal interest rates like the one we have here, the two year mortgage rate, they tend to be a good measure of most of the channels of transmission of monetary policy. So that includes that intertemporal substitution channel, so the bringing forward or delaying of investment and spending your household wealth channel and also the exchange rate channel. And it's these channels that tend to have, I guess over a business cycle the greatest influence on both activity and inflation. So in general terms, low interest rates today, they boost investment, they boost spending, we see the exchange rate decline and we see generally an increase in asset prices and an increase in spending out of that increase in wealth.

But these marginal rates don't capture all of the transmission of monetary policy and in particular, they don't do a great job of proxying the cashflow channel of monetary policy. So what I mean by the cashflow channel, that's the part of monetary policy that bites when changes in interest rates actually turn up and affect either the sort of spending power or affect household incomes and also business finances. So a good example of that is when a household actually sees their fixed mortgage rate roll off from a relatively higher rate to a lower rate and that impact actually shows up in their cash flows. And so I guess that channel highlights the importance of the bank, keeping an eye on things like the amount of debt that's going on, fixed rates, the upcoming repricing profile of household's, mortgage book, and also the pass through decisions that banks make around their funding.

So I'll go through that in a little bit of detail. Again, picking up some of the stuff that Nick highlighted in his introduction. [Refers to figure 2 in the below slide deck]

So one recent factor that's shaped transmission in New Zealand is that we've seen quite interesting behaviour when it comes to the choices that households are making around how long to fix their mortgage rate. So in early 2024, we can see that households started to shift to shorter terms in anticipation of OCR and mortgage rate declines. So the way to read this chart, essentially you've got the proportion of new mortgage lending that's occurring. So that's both new customers and refix. I tend to focus on the green lines here, which highlight the amount of, I guess, fixing activity that's occurring at either one year or longer. So it sort of proxies the longer term choices that households have. And as I said early 2024, you actually started to see households shift to the shorter term in anticipation of OCR and mortgage rate declines.

And so much so that by November, 2024, we had about 95% of our new flows occurring at one year or less and about 60% at six months or floating. And so maybe what's more important to note here is that households were actually paying a premium to do this. So effectively the mortgage curve was downward sloping households were opting for relatively higher short-term fixed or floating rates and anticipation of further declines in interest rates. 

And so we can see what this meant for I guess the cashflow channel more precisely if we look at this chart here. [Refers to figure 3 in the below slide deck] So this chart shows in the solid lines the advertised, I guess marginal mortgage rates in New Zealand at different terms. And then we can see in the purple dashed line, that's the average yield on total mortgage lending. So the average yield on the stock of outstanding mortgages.

And so we can see that a advertised mortgage rates actually peaked in December, 2023 in New Zealand, but the stock rates didn't peak until around November, 2024. And so that reflected the choices that households were making when it came to shortening the duration of their mortgage mortgages. 

We're now seeing this unwind, so things are beginning to normalise. You're seeing households choose to lock in for longer terms when it comes to mortgage rates. You've obviously seen advertised mortgage rates continue to decline over this period and you're also seeing a rising share of loans being repriced at lower interest rates. And so I guess in summary, what's happened is that in the early part of our easing cycle, you saw transmission slow, particularly through this cashflow channel as you saw those choices from households to go for relatively short-term rates. But things have now picked up again, they've normalised and that channel is sort of behaving as it has in the past.

A couple of other important things to note here. One is that, I mean it shows how factors outside the OCR can influence transmission, but it's important to note that when the MPCs making decisions around where to set policy, they're very aware of these different channels. So if you did see I guess significant limits to transmission through this cashflow channel, you would have options to offset it. The other thing to note is that other channels are more important in our framework. So the factors, the channels that I've mentioned earlier around savings and investment, I guess the exchange rate, the wealth effect, they tend to dominate over the medium term compared to the cashflow channel. But I guess this period did naturally lead to questions about the efficacy of monetary policy. I think worth remembering here that while the cashflow channel is very important and it's also very visible, it's probably the easiest one for us to observe and to measure. It's not the only channel and we don't want to overemphasise it just because it's the most, I guess, observable part of monetary policy.

Alright, so let's move on to another unique feature of this easing cycle. And that's been the rise in longer term bond yields that's been driven by a higher term premier in international government bond markets. So in New Zealand, obviously global connectedness means that we import both the economic and financial conditions from overseas. It's part of being a small open economy and that's why it's important for us when we see, I guess unique movements in our yield curve. We both need to look at this through a domestic and an international lens. 

So if we have a look at that in a bit more detail [Refers to figure 4 in the below slide deck], this chart shows 10 year sovereign bond yields, so a few comparative countries in New Zealand. And then the pink line here is the common movement amongst a wider panel of 10 year government bond interest rates. So a few things to pull out.

One is that in New Zealand interest rates tend to sit higher than in other countries and that's been a feature of our economy for a long time. The other to note is that there are I guess instances of unique movements amongst these countries as idiosyncratic factors play a role, but probably the most stark thing that you can see is that there is a lot of cove movement in these interest rates. We estimate that around 70% of the change in New Zealand 10 year government bond rates each month is accounted for by that global factor, so is often global conditions driving what we see in New Zealand interest rates. 

So we'll park that for a second, that sort of international co movement and go on to exploring, I guess the recent steepening of the New Zealand yield curve. [Refers to figure 5 in the below slide deck]

So obviously we've seen a significant steepening in the yield curve. Again, this has been a common feature amongst many economies. What I guess I want to unpack over the next few slides is that whether this matters or not for us depends on what is the underlying factor that's driving this steepening.

So let's have a look at the, I guess, history of the steepness of the New Zealand yield curve. So it's normal during a cycle to see the yield curve steepen. It's essentially been a feature of New Zealand policy cycles since at least the early nineties. Generally what's going on there is that it represents to some degree the credibility of your monetary policy. So if markets see, say an easing occur, they price in a normalisation and inflation and activity and therefore price in a pickup in interest rates later in the piece. Of course mechanically we're going to see a steepening of the yield curve, and you can see this most starkly during the GFC and also during the most recent period of easing since August last year.

But what's quite, I guess, unique about this cycle is that while we've seen this sort of usual steepening in the yield curve, we actually haven't seen an absolute decline in long-term yields. [Refers to figure 7 in the below slide deck] So this chart plots out the sort of average behaviour of the 10 year government bond yield during an easing cycle since the early two thousands, and then plots what's happened in the current cycle in the blue line. 

And so what you can see is that normally we see the 10 year government bond yield decline by around 50 basis points a year after an easing cycle begins. But this time we've actually seen interest rates increase, so they've increased by around 30 basis points during this cycle. And so as I mentioned, it's important for us to diagnose what the driver of this is so we can think about what the implications are for, I guess activity inflation and monetary policy.

So maybe I'll go to the next chart. [Refers to figure 9 in the below slide deck] This makes an attempt to diagnose what's going on in terms of the increase that we've seen in longer term bond yields. So we tend to think about, I guess in a relatively simple framework, a long-term bond yield being made up of the expectations component. So market's expectations of where short rates are going over that 10 year period. And that's measured here in the purple bars and then some sort of term premier, which can capture a lot of concepts. And that's measured here in the blue bars. 

And so what we're doing here is we are breaking down the change that we've seen in the 10 year government bond rate in New Zealand since the middle of last year into those two components. And you can see that while interest rate cuts in New Zealand have led to essentially a decline in that expectations component, we've actually seen that offset to some degree by this rise in the term premier.

And so it's that sort of increase in term premier, that's one of the unique features of this, I guess steepening relative to other episodes that we've seen in history. And again, I'll highlight that this is a global phenomenon, so it's obviously not only going on in new, it's very much being imported to some degree into New Zealand financial conditions and it's maybe not surprising. What you've seen over this period is a shift to quantitative tightening for many economies. You've obviously seen the significant increase in risk aversion that occurred during the emergence of COVID, and then more recently you've seen heightened uncertainty particularly around geopolitics. And so these are one of the, or three of the many factors that are potentially driving up that term premier.

So what's the point of all this for transmission? [Refers to figure 10 in the below slide deck] I think the key point to note is that a fair proportion of the steepening that we've seen in the New Zealand yield curve is being driven by this higher term premier, largely reflecting offshore trends.

And our research at the bank shows that a higher term premier acts like a negative demand shock. So that is you see a reduction in inflation and an increase in unemployment relative to an expectations led steepening. But that doesn't mean that we lack control over, I guess our monetary policy in New Zealand, particularly given the global component of the global factor that's driving this. There's a few reasons for that. Long rates increases can often represent economic fundamentals. 

So if you see a demand shock occur around the world that we import both stronger financial, stronger economic conditions in New Zealand and a steepening like this can help offset some of the inflationary pressure that results from that. The other thing is that if we do see a term premier driven tightening that unduly constraints demand in New Zealand, we can always bring financial conditions back to a level consistent with our price stability mandate. And that's largely through us affecting that expectations component of the previous chart that we went through.

Alright, so let me focus on one more area before I wrap up. That can potentially disrupt transmission. It's not something that we're seeing currently, but is something that we keep an eye on at the Reserve Bank of New Zealand and that's periods of global risk aversion. So when risk appetite sells offshore liquidity in New Zealand, financial markets can thin price discovery can become impaired and that often happens quickly without any change in the OCR. So part of our job at the bank reflecting both our monetary policy and our financial stability mandate is to monitor markets for these signs of dysfunction. So that allows us to assess whether the transmission of monetary policy is being impaired and also evaluate those possible financial stability risks and if needed we stand ready to act in those situations. But they are relatively rare occurrences confined to examples like the global financial crisis and the off onset of the pandemic.

I will use this chart to sort of illustrate some examples of this. [Refers to figure 11 in the below slide deck] So this is the bid spread on two and 10 year New Zealand government bonds and it highlights most notably the sort of dash for cash episode that occurred at the start of the emergence of the pandemic. We saw, I guess a deterioration in bond market functioning around the world. Probably the thing to note is that while the risks of these episodes are relatively small, they're probably elevated at the moment, partly reflecting I guess market fundamentals around the ability of, well, I guess shrinking dealer capacity is one of the factors. And the other is purely just the elevated environment of economic uncertainty that persists at the moment. 

More recently you saw in April a short sharp episode occur following the announcement of the sort of broad US tariffs. We saw this shock ripple pretty quickly through major sovereign markets and that passed through into New Zealand. We saw a brief period of illiquidity in New Zealand government bonds, I guess wider bit are spreads, but obviously not on the scale of previous episodes. And then you saw I guess a rapid repricing and conditions normalised relatively quickly. So I guess another reminder that in interconnected global system, you can see these market stresses sharp relatively quickly in our own markets. In the end, that episode was brief. You saw the announcement of the pause of US tariffs and that resulted in a normalisation in market liquidity. You didn't see any disruption to bond issuance effectively. You just saw core financial markets doing their job when it comes to price discovery and risk transfer. 

So the system absorbed the shock without it having a major impact on New Zealand financial conditions. It does reinforce the view that while short periods of poor market liquidity generally don't need to be met with central bank intervention, it is prudent for us to be ready to act to support market functioning if required. But we do need to provide space for markets to self correct and any, I guess intervention should be limited to scenarios where our policy objectives are likely to be compromised.

If you did see more significant dysfunction, we do have tools to reinforce, I guess the stance of monetary policy. It could be as simple as effective communication helping to anchor expectations. You could see us adjust our BAU liquidity operations and I guess we are warranted. We do also have crisis tools such as our bond market liquidity support facility as well. 

So these and other tools sit alongside the OCR to ensure the yield curve and market plumbing remain consistent with price stability and financial stability.

So let me wrap things up there. Really just want to reinforce those key three themes that I highlighted at the start. So overall transmission is largely played out as expected when it comes to this easing cycle, but we have seen a couple of idiosyncrasies. So we've seen that rise in long-term bond yields driven by higher term premier around the world. And at the same time you've seen that quite interesting behaviour from New Zealand households in terms of the start of the cycle opting to fix for relatively short term periods that I guess hampering to some degree the cashflow channel of transmission. The other thing to note is that while the cashflow channel is important, it's very visible, very easy to measure. It's not the only channel of monetary policy. And so we don't want to overemphasise it too much when we're thinking about overall stance of policy. And lastly, that international factors are always going to play a large role in our conditions in New Zealand, but we have the tools we need to set policy where it needs to be to ensure price stability. So let me leave it there and we can take questions. Thanks.

[TK]: I thank you. The RBNZ has been a very hot topic of conversation at the conference for the past two days. As you can imagine, clearly the markets have had a vested interest in the RBNZ rate cutting story. So I'm sure we're going to have plenty of questions from the floor, but first one from me and that is what has been the impact of the US tariffs on New Zealand and how do we think this will continue to play out?

[AR]: Sure, yeah. So I guess in May we sort of outlined our initial thinking of how this would play out. We kind of made the decision or the call that tariffs would likely be a negative demand shock for New Zealand. So those impacts in terms of both uncertainty and also just weaker global activity would be the things that dominate. I think what we've seen is probably played out as we expected in terms of those broad channels, but a little bit of nuance there. The US economy in particular is probably held up a bit more than we thought it would. I guess the of tariffs has been offset a little bit in other areas when it comes to the states. So I think maybe the economic impact we're still to see the full effect of it in New Zealand. It's definitely the case that part of the reason why you saw, I guess, weakness and activity in New Zealand over the second quarter was that uncertainty effect still I guess acting to limit business spending and consumer spending. So I think it'll play out that way as we expected in terms of being a net demand shock. But maybe a little bit of a cushion has occurred from what's happening in the US.

[TK]: And certainly anecdotally when you see around New Zealand, you go to the local lamb sale and the price of lamb's up 30%. So the rural economy's doing well, tourism's obviously doing well. So it's obviously quite sectional let's say. Yes, that's right. No, cool. And listen, do we have a question from the floor? I've got some more, but we'd like to hear from everyone. So yep, lots of hands.

[Person in audience]: Just a couple of questions. I think when your first chart, you looked at the markup, the cost for banks in terms of the mortgage rates, it would visually appear that that's widened over the last few years and any investigation, a deeper dive from the RBNZ to understand why that is. And the second question would pertain to, I think Kim Martin yesterday spoke about the RB NZQ QT programme. To what extent has that had an impact on term premier for New Zealand government bonds? And as it ends, do you expect that to come out of the premier that's currently in the government bond market?

[AR]: Yep. Yeah, so on the first one, I mean that there tends to be a bit of lag and transmission and so you do see a bit of volatility in that markup measure through an interest rate cycle. When you look at things like I guess mortgage rates spread to swap those types of metrics, they do sit around average. So there's no obvious like a structural transmission issue that we can see going on there. It is probably just more the usual volatility and lags that you see in a cycle. Nothing fundamental. On the second question. I guess, yes, to some degree the QT programme is going to have a positive impact on the term premier because that's how QE essentially works, right? QE is aimed at suppressing that term premier and therefore long-term rates. I think probably what's happened is that that's been a marginal influence compared to what's going on internationally and that I guess profile is largely priced in. So I wouldn't expect as the programme continues that that would be a source of upward pressure on long-term interest rates. It's obviously something that we'll monitor at the bank and something that we talk about. But yeah, I wouldn't say it's the key factor over the past couple of years. 

[Person in audience]: I have a whole lot of questions, but I'll just sort do a two-parter. You spoke about the importance of expectations in terms of that term premium and kind of negating the global pressure. When you are putting forward an OCR track and signalling to the market, would it be fair to conclude that at this point there's a little more pressure to signal that that rate needs to stay low and contained because of that need to offset the term premium And part B, because you were talking about 10 year besides the government, how important are borrowing rates say beyond five year or there's a lot of focus two year always, but how important is the rest of that curve?

[AR]: Yeah, both good questions. So you take a look at the MPC deliberation. So in our record of meeting we do call out the increase in long-term rates that has occurred. And so that's sort of something that, it's not like it's the only driver of how you'll set monetary policy and the OCR track that you'll publish, but it is something that the committee's thinking about in terms of the impact that it's having on demand. And so I guess in New Zealand you do have that powerful channel of publishing that track if you want to have that influence on expectations. On the second, sorry, what was the second question?

[Person in audience]: Around the importance of five year?

[AR]: Oh yes, yes, yes, yes. Right. Yeah. So obviously 10 rate not that important for, it's not a rate that a household can access on their mortgage very easily, but what we find is that interest rates in the five to 10 year part of the curve tend to be the factors that drive both investment decisions. So obviously firms are thinking about that full profile when they're making those decisions. And then surprisingly, maybe it also seems to be an important driver of activity in the housing market. So I guess houses are being quite sophisticated in thinking about, or I can maybe fix for two to five years, but I'm also going to think about what that rollover risk looks like. And so in the analysis that we do, we find that that sort of five year mortgage rate is actually quite a proxy or indicator for what's happening in the housing market.

[Person in audience]: Hi Adam. Probably a bit more of an operational question, but speaking to international investors, there is a desire for the RBNZ to have more participation in the repo market. Can you comment on what the RBNZ has got planned in order to help support the market in periods of disorder?

[AR]: Yeah, sure. So there are a few things to note there. One is that we're currently consulting on two things. One is the future design of our liquidity operations and the other is the committed liquidity facility that we're looking at introducing. So as we've moved from really high level of sediment cash to something more normal, as our crisis programmes roll off, we are sort of essentially asking that question, what should our involvement be in that setup? And so we're consulting at the moment on exactly those questions, the frequency of our open market operations, how we design them, how we price them. So I haven't seen the feedback yet, so I'll leave the sort of conclusions till we get that. But yeah, it is something that we are looking at the bank and then we have our traditional, I guess as our mentioned, more dysfunction focused tools that we can fall back on in periods of more extreme crisis. And that's essentially the gambit of our options. But yeah, we'll have more to say probably the first half of next year in terms of what that new liquidity framework will look like. Yeah.

[Person in audience]: Hi Adam. I think one thing that you didn't have up on your list there was the exchange rate. And we have at times in the past where the exchange rate, particularly in times of huge global crises, we've seen it move quite dramatically. So what sort of role do you see the exchange rate playing in that transmission of monetary policy at present? So that's one part question another, but you mentioned also the wealth channel as well. So it would be good if you could elaborate on that because the housing market at the moment's, I guess you might call it quite calmed at the moment. So what role do you see that influence of that on the economic recovery, the impact on people spending decisions and monetary policy going

[AR]: Forward? So on the exchange rate, it's probably, it's played its normal role as a shock absorber. I'd say during this easing cycle it tends to be the channel of transmission that shows up most early. So it's the early part of the transmission channel of monetary policy. It has a big impact on import prices and activity. If we see a decline, I wouldn't say we've seen anything out of the ordinary well when it comes to the exchange rate, but it's been that normal shock absorber role has sort of played out as we would expect. I would say. Sorry, what was the second question?

[Person in audience]: The wealth impact

[AR]: Particularly. Oh, the wealth impact. Okay, so the wealth impact, yeah, that's quite interesting. It has historically been an important part of how monetary policy affects the economy and it has been the case that the housing market has been weaker than we initially assumed. I think maybe the hopeful story there is that New Zealand has made a lot of changes when it comes to the ease with which you can build. And so you might instead see transmission instead of through prices through building activity instead. But yeah, at least for now, that's been one area where we've had the housing market's been a little weaker than we initially assumed it would be. I don't think it's not a channel that's sort of all of a sudden shut off. It's just more reflective of the general weaker than expected outcomes we've seen in New Zealand activity, I think.

[TK]: And I'll segue into that with a question from the live stream, and it's obviously a subject close to a lot of people's hearts. Is the bank surprised by the lack of pickup and house prices given it is the channel for monetary policy after 300 basis points of easing?

[AR]: So we've sort of looked at our forecasts exactly because of this question and we've been a little surprised, but as I said, I think that more relates to the weakness in activity that we saw over the first part of the year as well. So you had some statistical quirks gone with the GDP data, but it was still the case that the economy was weakened than we thought it would be over the first part of the year. And so yeah, I think it sort of tied up in that dynamic.

[TK]: Does the bank have a forecast for house price growth?

[AR]: We do, but off the top of my head, I think our forecast is pretty much, it tends to be house price growth around the same rate as income growth over the next couple of years.

[TK]: Yeah. Alright. No worries. Do we have any more questions? Yep. Couple down here.

[Person in audience]: Hey Adam. Sorry, can you hear me? Yeah, just thinking about the easing cycle from August last year to now, it's been pretty aggressive, but you now seeing inflation, headline inflation edge towards the top of the ban underlying inflation is still above the target. And yes, consumption's weak, but you've also got the dynamic where it's wise at sort of five year lows and the risk of importing inflation's higher. How do you square the circle with further cuts when you've got these sorts of risks around?

[AR:] Yeah, so there's a few things going on there. One is we've seen these competing forces over the past couple of years in New Zealand where you've had a lot of spare capacity in the economy and that should be bringing down essentially domestic pricing pressure. But at the same time you've had essentially a bit of a hangover from the high inflation period post COVID where it seems firms and households are still, I guess, setting prices higher than they normally would. They're still being influenced by that high inflation period. And so it's been those two things that have been working against each other to some degree. We are now seeing that pricing pressure component moderate, and so we think over the medium term that spare capacity will begin to dominate when it comes to domestic pricing. The other thing that's going on is we have seen some temporary moves higher in inflation. So in particular around administrative prices. So things like rates, you've seen electricity prices move higher and we think that'll be temporary. So if you look at our core inflation measures, they do sit much closer to 2% than that headline. So it's probably those two factors. We think we set monetary policy given the lag and transmission about one year to 18 months ahead. And we think that the spare capacity in the economy at the moment is going to generate that continued decline in domestic inflationary pressure. And so that's sort of driven that, I guess decline in the OCR. That's the key reason.

[TK]: One more, we've got time for one quick question.

[Person in audience]: I just wondering if you might share your thoughts on the impact of immigration on both spare capacity and labour force. Maybe thinking about all of that too, net wealth effect

[AR]: As, yeah, so we tend to think on net maybe about a year out that inflation's largely neutral for inflation. So you both bring in more supply but also more demand, particularly around housing. I think it's probably a factor over the past year that explains some of the weakness though that we've seen in the housing market. New Zealand migration has fallen from quite high rates over the past couple of years. So yeah, it changes the mix of the economy and it changes the mix of short-term inflation dynamics, but over the medium term we think it largely cancels out those two supply and demand side effects.

[TK]: Alright. And there we have the music, meaning our time is up. So I'd like to thank Adam for his time and expertise. Thank you very much. Cheers. Thanks.