response to a sudden correction in the exchange rate would depend largely on what triggered it. an interest rate response might be warranted if it were driven, for example, by portfolio investors reducing their exposure to new zealand with few real economic factors underpinning it. it may not be needed if the decline in the exchange rate was driven by a sharp fall in the terms of trade. a further risk to the expansion is the level of house prices. by historic and international comparisons, new zealand house prices are overvalued. a recent oecd study indicated that house prices in relation to income are 25 percent above their long - term averages, while rents are 60 percent above. 4 the situation is exacerbated by household debt levels of around 150 percent of household disposable income that are again on a rising trajectory. oecd economic outlook, volume 1, may 2013. bis central bankers ’ speeches while a substantial fall in new zealand house prices is unlikely, such a fall could happen if there was a marked deterioration in the household sector ’ s ability to service its mortgage debt due to a sharp rise in unemployment, falling incomes, or very high domestic interest rates. a sharp correction of the type seen in several advanced economies in recent years would likely be accompanied by a domestic recession. the housing market poses risks to financial stability and the broader economy, and is a major reason why the reserve bank introduced speed limits on high loan - to - value ratios for residential mortgages in october 2013. at present, we have limited data relating to the post - lvr period. the information to date suggests that housing turnover and the rate of house price inflation may be easing, but this could be due either to lvr restrictions or other factors such as house affordability. it will be some time before we can gauge the overall effect of the measures. monetary policy going forward the reserve bank ’ s goal under the policy targets agreement is to keep future average inflation near the 2 percent target midpoint. achieving this will help to ensure that economic activity is kept more in line with the potential growth of the economy, thereby promoting a more sustainable growth path. further, price stability itself has benefits for long - term economic growth. it enables households, businesses, and governments to plan with greater certainty ; it facilitates longterm contracting ; lowers the inflation risk premia embedded in interest rates ; and enables producers, consumers, and investors to respond to opportunities created by changing relative prices rather than diverting resources to hedge

opening remarks to finance and expenditure committee. adrian orr, rbnz governor 24 november 2022 ref # x954866 v1. 8 tena koutou katoa it is good to be with you this morning to present our november monetary policy statement. i ’ m joined by assistant governor / general manager of economics, financial markets and banking, karen silk, and our chief economist paul conway, and i acknowledge our other monetary policy committee ( mpc ) colleagues some of whom are with us today or watching online. today we are here to outline our most recent monetary policy statement and the reasoning for our ocr decision. to provide the best context possible for the committee ’ s decision i will refer briefly to the reserve bank ’ s recently published review of our monetary policy actions over the five years endedseptember 2022. 1 the review – undertaken in conjunction with the board of te putea matua and peer reviewed by two independent international experts – is a legislative requirement. it is also a timely requirement from the committee ’ s perspective. over the period reviewed, the global and new zealand economy has experienced historically significant economic shocks, in large part due to the covid - 19 pandemic and exacerbated by russia ’ s invasion of ukraine. policymakers, including the reserve bank ’ s monetary policy committee, are currently dealing with the significant and ongoing implications of these shocks. our monetary policy statement is our most recent analysis of the economic implications for the new zealand economy. on behalf of the committee, we are sorry that new zealanders are being buffeted by significant shocks and inflation is above target. as we ’ ve said before, inflation is no one ’ s friend and causes economic costs. 2 we also want to reaffirm the committee ’ s determination and confidence we will return annual inflation to within our 1 to 3 percent target range. the review highlights several lessons that we are adopting, and we are continuously learning as things evolve. _ _ _ _ _ _ _ _ _ _ _ _ https : / / www. rbnz. govt. nz / monetary - policy / about - monetary - policy / rafimp https : / / www. rbnz. govt. nz / hub / news / 2022 / 07 / monetary - policy - review as our chief economist paul conway explained when we released the review with the benefit of 100 percent hindsight : the committee would have had to lift the ocr to around 7 per cent in early 2020 to have