and tools to ensure we are most effective. as already mentioned, the pandemic struck at a time of already historically low nominal interest rates. the implication being that – like many other central banks globally – te putea matua was limited in its ability to reduce the official cash rate ( ocr ) before reaching zero or some notional effective lower bound. our values and team capabilities ensured we were prepared for such a situation and ready to innovate as issues evolved. we also collaborated with our international colleagues, learning from their experiences and vice versa. fortunately for us, unlike many of our colleagues, we ’ ve had time to consider the pros and cons of alternative monetary instruments before having to immediately deploy them. we published some of this thinking earlier this year. 2 our responses to the covid - 19 induced economic shock have included : a significant reduction in the ocr ; the introduction of large scale asset purchases ( lsaps ) ; the provision of plentiful and cheap liquidity for the banking system ; supporting the functioning of new zealand ’ s debt markets ; ensuring accessibility of cash ; and facilitating a variety of government and industry - led initiatives to allow the financial sector to remain customer - focused. all of these strategies directly support our monetary and financial stability objectives and are managed well within our risk appetite for ensuring ongoing success. we highlight the interaction of these policies in the following figure. 1 policy responses to covid - 19, international monetary fund, accessed : 31 august 2020 https : / / www. imf. org / en / topics / imf - and - covid19 / policy - responses - to - covid - 19 2 rbnz ( 2020 ). ‘ principles for using unconventional monetary policy in new zealand ’, https : / / www. rbnz. govt. nz / monetary - policy / unconventional - monetary - policy figure 1 : mahi tahi : working together to ensure cash - flow and confidence source : mahi tahi : working together to ensure cash - flow and confidence ( pdf 318kb ) while some of the strategies and tools the bank has developed and / or implemented recently appear new, they are in fact used widely internationally and, in some cases, have been deployed before here in new zealand. 3 i will return to discussing these tools shortly. what is unique, however, is the impact these policy actions have on the outcomes we are trying to achieve. the impact on monetary conditions and overall economic activity will always depend on the

inclined to spend, which supports the economy. however, job security and a predictable household income has the most immediate and beneficial impact on economic wellbeing. unemployment worsens economic wellbeing and underpins income inequality. moreover, periods of unemployment are both more likely and persistent amongst people with lower skills or more transitory attachment to the labour force. these characteristics are most evident, for example, amongst youth, female, and maori and pasifika, demographic cohorts. the biggest contribution we can make right now to economic wellbeing is to improve new zealanders ’ job prospects through lower interest rates. can our monetary tools – such as negative wholesale interest rates – reduce banks ’ willingness to lend? we will only implement monetary policy in a way that succeeds in achieving our dual goals of monetary and financial stability. this is why we are discussing a package that can best achieve this outcome. our package includes a combination of lower interest rates, direct lending to banks, and ongoing quantitative easing. we will not overly rely on a single tool that could lead to suboptimal outcomes. moreover, new zealand remains a great environment for banks to operate in – recording some of the highest profitability in the world, with some of the lowest risks for shareholders. our banks are in a strong financial position, with capital and liquidity headroom, to support their customers. new zealand ’ s financial institutions must use their risk models and capital allocation tools to be part of new zealand ’ s economic success. banks and financial intermediaries will need to make important decisions based on sound risk - judgement. this is why we have insisted our regulated entities operate in their customers ’ best long - term interests. this is not simply saying ‘ yes ’ in the good times and ‘ no ’ in the tough times. financial intermediaries – especially banks given their dominant role in new zealand – need to clearly articulate their risk appetite and their culture. they must then operate consistently within their risk appetite over time. it is only then that customers can be sure of how they will be treated and why. acting consistently and transparently through time is what we mean by banks acting ‘ courageously ’. courage also involves banks having deliberate conversations with their stakeholders – the owners of the equity – that past expected risk - adjusted returns may not be achievable if they wish to be ‘ sustainably successful ’, that is, over the medium - to long - term. even with all of this in place there will still