of each measure since 2009, moving from very loose on the left to very tight on the right. the pink dot shows the current value, while the blue dot shows the values at the start of the year. these indicators paint a similar picture to our neutral interest rate estimates. wholesale, bank lending, and bank deposit rates all remain broadly restrictive. this is despite some loosening over 2024 as markets anticipated the start of the easing cycle. home loan interest costs as a proportion of disposable income have risen to their highest level since 2010 but remain lower than the period following the global financial crisis ( gfc ). conversely, bank credit has remained more accommodative, in line with strong bank funding positions. the downstream effects on the domestic economy also indicate the stance has been restrictive. high interest rates are reducing demand in new zealand. weak household consumption and business investment, easier labour market conditions and lower wage growth, along with declining inflation expectations, are providing reassurance that our monetary policy stance has been sufficiently restrictive to support cpi to fall back to our target mid - point. monetary policy transmission to financial conditions during the recent tightening cycle transmission from a change in the ocr to domestic financial conditions occurs in two stages. 6 during the first stage, policy rate changes and expectations for future interest rates influence the level and direction of wholesale interest rates. figure 3 : ocr and new zealand wholesale rates source : rbnz, bloomberg short - term rates are more heavily influenced and responsive to the level of, and near - term expectations for, the ocr, while longer - term rates can be significantly influenced by broader factors like inflation expectations and global investor risk sentiment. as a result, the magnitude and pace of influence on long - term rates can vary significantly7. _ _ _ _ _ _ _ _ _ _ _ _ 6 for example, see lane ( 2022 ), mann ( 2023 ) and rbnz ( 2024 ). 7 see lewis and rosborough ( 2013 ). for example, market expectations for higher global inflation during 2021 contributed to higher long - term global interest rates8. we can see in this chart that this led the new zealand 10 - year swap rate to increase earlier than short - term wholesale rates and the ocr. the second stage is the transmission from wholesale rates to bank lending and deposit rates. during a tightening cycle, banks face higher funding costs which they pass through to higher lending rates. higher debt servicing costs reduce free cashflow and

into law. maintaining price stability, as i am required to do, is different from firstly having to achieve it, as was required then. as you know, before becoming governor, i signed a new policy targets agreement with the minister of finance. this new agreement offers monetary policy a bit more scope to take evolving circumstances into account. in particular, the new agreement makes clearer that the reserve bank should maintain price stability in a flexible way that does not unnecessarily disrupt the real economy. the key change in the agreement is that the inflation target has been explicitly defined in terms of “ future inflation... on average over the medium term ”. this implies that monetary policy should be forward - looking, and avoid getting distracted by transitory fluctuations in the inflation rate. in typical circumstances, we expect to give most attention to the outlook for cpi inflation over the next three or so years. if the outlook for trend inflation over that period is inconsistent with the target, we will adjust the official cash rate. our intention will be that projected inflation will be comfortably within the target range in the latter half of the three year period. this means we will set policy so that inflation will be within the target range in the medium term, unless we are hit by a major surprise event. if a major surprise does occur, we will explain what has caused inflation to be higher or lower than we wanted, and what steps we will take to ensure that it goes back comfortably within the band. i said the new policy targets agreement offers us a little more flexibility, but it ’ s a flexibility that needs to be applied with care. the language of the new agreement makes clear that inflation should not be persistently outside either end of the band. this is because a sustained breach of the target could affect people ’ s perceptions of the trend inflation rate. that in itself could create a major inflationary problem. thus, if one of the disturbances i mentioned earlier appeared to be strongly stimulating or weakening activity in new zealand - suppose there was a sharp and persistent increase in tourist numbers for example - then the inflationary consequences might not be transitory. so, to keep inflation from rising and activity from going through a boom - bust cycle, monetary policy still needs to act to counteract the impact of these disturbances. and monetary policy still needs to respond particularly assertively when inflation is expected to be well outside the target range, or persistently outside it. but, at other times, if inflation is fairly stable and if we