starting 15 see orr, edey and kennedy ( 1995 ) and oecd ( 2013 ). 16 see figure 5 in williams ( 2017 ). ref # 7076865 v2. 1 point. nfl - gdp near 60 percent remains high by international standards, and continues to be a concern of rating agencies, especially given our exposure to commodity exports that can be subject to large price swings. there are a number of ways to look at whether a real exchange rate is in equilibrium, including the assessment from various models, and whether growth and debt servicing paths are sustainable. one model ( of several ) the bank uses is the macro - balance model, which assesses the degree to which the exchange rate is currently too high or low in order to stabilise nfl - gdp at its current level. 17 this model indicates that the current level of the real exchange rate is consistent with nfl remaining at about 60 percent of gdp, given the bank ’ s medium - term outlook for key economic variables ( including a continuing upward trend in the terms of trade and a slight improvement in the household saving rate ). however, it yields no further reduction from the current nfl - gdp level. a lower new zealand dollar would be needed to lower nfl - gdp and our external vulnerabilities further. indeed, from a growth point of view, a lower exchange rate would help rebalance growth towards the tradables sector, especially as not all traded industries are benefitting from the current high terms of trade. how sustainable do we believe the improvement in new zealand ’ s nfl position might be? turning from the past to the future, where might new zealand ’ s external position head from here? our current medium - term forecast ( from the may 2017 monetary policy statement ) has nflgdp remaining at about its current level of just below 60 percent over the forecast horizon ( to 2020 ). many assumptions about the domestic and global economy underlie this forecast ; some of the most relevant are that : the terms of trade continues its gradual upward trend ; exports of services continue to increase at the same rate as gdp ; the implied interest rate on our foreign debt increases only gradually, and remains below its pre - gfc peak ; annual household consumption growth moderates gradually over the medium term, and is outpaced by income growth ( implying a slight improvement in the household saving rate ) ; and, nominal business investment remains low as a share of gdp. 17 graham and steenkamp ( 2012 ) provide an

credit and liquidity risks. these initiatives continue to develop and advance as we speak. working together – mahi tahi – ( figure 3 ) 7 proved to be a critical catchphrase and one that we will continuously foster. ‘ mahi tahi ’ acknowledges that no one individual, enterprise, or policy institution can succeed alone. 5 reserve bank annual report 2020 6 tools to support the economy 7 mahi tahi : working together to ensure cash - flow and confidence figure 3 : working together : mahi - tahi diagram source : rbnz. released in march 2020 being prepared beats guessing the ability of new zealand to sustain the current economic momentum remains in large part at the will of the covid - 19 virus in the short - term, and our confidence and adaptability in the longer - term. our recent monetary policy statement ( mps ) 8 outlines that new zealand has been in the relatively fortunate position of having dealt swiftly with the initial covid wave. this health outcome, combined with the economic policy response, has seen domestic activity pick up. however, we continue to emphasise that the current pick up is sector and event specific, and that we will not be ‘ resuming business as previous ’ in its entirety any time soon. the initiation of global vaccination programmes is positive for both future health and economic activity. however, there remains a significant period before widespread immunity is achieved. in the meantime, economic uncertainty will remain heightened and international mobility restrictions will continue. confidence and investment will be needed to sustain economic performance. for this reason we have retained a stimulatory monetary stance. 8 reserve bank february 2021 monetary policy statement given this elevated uncertainty, at the bank we are still operating with scenarios in mind rather than predictions. our recent briefing to the incoming minister outlined some of the challenges confronting society globally and in aotearoa, and their impact on te putea matua policy considerations. we summarised the challenges under the long - term headings of prosperity, sustainability, cohesion, and inclusion. these headings reinforce a long - term horizon and the inter - related forces that will determine our success. 9 for example, new zealanders have all weathered the economic implications of the pandemic differently based on a wide range of drivers, e. g. demographics, location, sector of economy, connectedness to the labour force, and individual ’ s reliance on wages or profits. aggregate economic statistics mask a myriad of distributional implications for health and economic outcomes.