the gain is achieved at the expense of other new zealanders, since in aggregate we are all worse off. to put it bluntly, if the reserve bank is to be able to “ look through ” the impact of things like the increase in petrol and cigarette prices in implementing monetary policy, we new zealanders also need to “ look through ” the impact of those things on the cpi. to the extent that we don ’ t, and instead seek compensation for the impact of those things on the cpi, the bank will need to tighten monetary policy to a greater extent. the only alternative would be permanently higher inflation, and that would help nobody and hurt those least able to protect themselves. in recent years, the reserve bank has been happy to report that inflationary expectations are now well anchored at a low level. we have been able to say that, as a result, we expect that smaller adjustments in interest rates will be required to maintain price stability, and of course this is good news. it would be a tragedy if sloppy thinking by price setters, and a return to an indexation mentality, meant that the benefits of those lower inflationary expectations were lost. the impact of the exchange rate on inflation the second point i want to reiterate is the relevance of the exchange rate to inflation. the exchange rate has two effects on the inflation rate. first, there is the more or less immediate impact of movements in the exchange rate on the prices of goods and services which are traded internationally, or which could be traded internationally. we know, for example, that when the new zealand dollar depreciates the new zealand dollar price of oil goes up, and the price of petrol goes up with it, quite apart from any impact of an increase in the international price of oil measured in us dollars. similarly, the price of milk goes up, even though milk is not imported, because the new zealand dollar price of milk on the international market goes up with the depreciation of the new zealand dollar. these so - called “ direct price effects ” of a movement in the exchange rate typically affect new zealand ’ s inflation rate quite quickly, usually within six to 12 months. we used to think that a 1 per cent depreciation in the exchange rate would produce an increase in the inflation rate of about 0. 3 per cent within 12 months as a result of these more or less immediate direct effects. but for some years now, the impact of a change in the exchange rate seems to

benoit cœure : interview in kathimerini interview with mr benoit cœure, member of the executive board of the european central bank, in kathimerini, conducted by giannis papdogiannis and published on 13 july 2014. * * * after a prolonged period of instability and uncertainty, greek banks are showing signs of stabilisation. what is your opinion about their situation? the greek banking sector has come a long way over the last four difficult years. it has undergone major consolidation and greek banks have been recapitalised. today greek banks no longer need to make use of emergency liquidity assistance and have managed to gain access to the international markets. these are encouraging signs. we now have to wait for the outcome of the ecb ’ s comprehensive assessment, which will be available at the end of october. looking forward, the main challenge that has to be addressed is the high percentage of non - performing loans. several initiatives have already been announced by the bank of greece in this respect. a change in the payment culture will also help deal with part of the problem. until recently greece was solely dependent on official financing as it had no access to markets. however, the successful recent share capital increases undertaken by banks and the return of the greek sovereign to bond markets indicate an increased appetite by private investors for greek risk. how much does this change the overall picture? can it help greece get out of the crisis faster? the improvement in financing conditions for greece and greek banks is encouraging. however, the transition to smooth and regular access to capital markets will be a long one. the benign investor perception today is based on the assumption that reforms will continue. the greek authorities thus need to continue to be determined in their reform efforts. what else should greece do in order to get out of the crisis permanently? the significant adjustments made so far under the macroeconomic adjustment programme have allowed the greek economy to enter a new phase, moving from stabilisation to economic recovery. it is now important to ensure that the country stays on course with the reform process in order to reduce unemployment and achieve sustainable growth based on sound public finances, which will improve living standards for all. this includes achieving the ambitious fiscal targets that have been set. let me stress that opening up and liberalising product and service markets and fighting unjustified privileges, tax evasion and corruption more effectively are of key importance for improving social fairness and reducing unemployment. do you think that the ongoing stress tests performed by the