of answering that question requires taking a position on just how much stimulus current interest rate settings are adding to the economy. if our economy were growing at a rate with no under - or over - utilised resources in aggregate ( often referred to as a zero output gap ) and inflation were close to the midpoint of our 1 to 3 percent target band, then interest rates that neither stimulated nor restricted the economy would be appropriate. such a level of interest rates can be termed the neutral interest rate. interest rates set below this “ neutral ” level tend to boost the pace of activity and inflation in a sluggish economy where inflation would otherwise be falling, and interest rates above this “ neutral ” level tend to slow the pace of activity and inflation where inflation would otherwise be rising during economic upswings. our latest forecasts project the output gap to be near zero and inflation to be close to the 2 percent midpoint in march 2016 ( figure 1 ). consequently, the appropriate monetary policy setting at that time should be very close to neutral. our projections suggest the level of the see blinder, a ( 1998 ) central banking in theory and practice ( mit press ). bis central bankers ’ speeches nominal 90 - day interest rate that achieves this is about 4½ percent. 2 this is very close to my best estimate of the neutral nominal 90 - day rate at present, though any point estimate of neutral comes from a fairly wide confidence interval – perhaps 100 basis points or more. 3 at this point i think it is useful to review the economic factors that determine neutral and explain how the reserve bank estimates it. figure 1 a stylised view of monetary policy settings source : rbnz 2. what is a neutral interest rate? to set the scene, it is worth reflecting on exactly what interest rates are. interest rates reflect the price of shifting resources from one period to the next. over long spans of history, changes in neutral interest rates have been a significant part of the variation in actual interest rates ( figure 2 ). for example, the change we can see in real mortgage rates over the past 90 years or so is greater than can be accounted for by business cycle fluctuations and monetary policy. the uncertainty in estimating neutral can be gauged from past work at the bank which has produced error bands of between 1 and 2 ½ percentage points. these error bands are based in some cases on formal confidence intervals. in others they are based on the range of results produced by a collection of different estimation methods.

a broad range of decisions on monetary policy. the meeting has a number of goals. one aspect of the decision - making process is to reach a decision on the ocr. this decision is often the one that gains the most public focus. for a discussion of theory and evidence, see blinder ( 2004 ), ‘ the quiet revolution : central banking goes modern ’, yale university press. for a full description of this process see richardson ( 2016 ). bis central bankers ’ speeches however it is not just today ’ s ocr, but the full outlook for interest rates, which is important for influencing today ’ s consumer and business behaviour and ultimately inflation. as a result, the governing committee also puts significant focus in its deliberations on reaching a consensus on the outlook for interest rates consistent with the objectives of the pta. the governing committee also works towards a consensus on what key messages to include in the statement. the meeting begins with the governor summarising the written advice of the mpc ( including members of the governing committee ). the governors then discuss the mpc advice, their own views, and points of difference. if there are competing viewpoints within the governing committee, the members have an opportunity to reconsider their positions. once the governing committee has reached a consensus on the range of policy considerations the governor then formalises the decision the governing committee is a collegial committee, in that it aims to reach consensus on appropriate policy settings through debate. the collegial approach is advantageous in that is helps the bank to sharpen the communication of a policy decision. if the governing committee is unable to reach a consensus view on the range of policy considerations, it will go with the majority view if one exists. if the views are balanced, the governor will have final say on the policy outcome. once a decision has been finalised, each member of the committee adopts the outcome as their own position when speaking in public, ensuring a consistent message and unified voice. reviewing our performance making a decision in a committee setting is one way the bank deals with the uncertainty faced in setting policy. another way to deal with this uncertainty is to regularly review our policy decisions and framework. this helps the bank improve its state of knowledge of the economy and learn from any past errors. a number of reviews have been conducted on the elements of the bank ’ s monetary policy framework. these include formal reviews, like in 2001 and 2007. 6 in addition, the bank often invites other central bank