is precisely what happened, for example, on the announcement of the gdp figures for the march quarter of 1998 at the end of june, for the june quarter at the end of september, and for the september quarter near the end of december. in each case, monetary conditions moved in a broadly appropriate direction. conclusion at the beginning of my address i asked what new zealanders can expect of monetary policy in the long term. i would hope that they can expect monetary policy to become so totally predictable as to be boring – stable average prices year after year after year – because that is the best environment for growth in output and employment. interest rates will still move up and down to some degree of course, reflecting changes in the balance between savers and borrowers. but the week - to - week volatility of short - term interest rates should be diminished by our move to implement monetary policy through an official cash rate, and our progressively longer track record of low inflation should make it unnecessary ever to push interest rates to the levels seen in the early stages of disinflation in the mid - eighties. the new zealand dollar will also fluctuate of course, certainly against individual currencies and even against the trade - weighted index. as i discussed in a speech to the canterbury employers ’ chamber of commerce at the end of january, that appears to be a fact of life which nobody has yet found a way of avoiding. so i suppose that, with interest rates and the exchange rate still moving up and down, monetary policy will never seem totally boring. but with luck monetary policy will at least come to be seen for what it is when it is formulated with skill, namely a useful contributor to a prosperous society, but not nearly as important as a whole host of other matters – policies on education, policies on the labour market, policies on taxation, our access to international markets, the quality of our managers, and all the rest. those are the things which will really determine our longer - term prosperity.

targeters, but the distinction is useful in highlighting why all central banks are more or less ‘ flexible ’ inflation targeters. the reserve bank of new zealand has never been a ‘ strict ’ inflation targeter. from the very first policy targets agreement, reasons why actual inflation might legitimately fall outside the target band – the so - called caveats – were recognised. at no stage have we treated the centre of the inflation target band as a fetish. early in 1996, after inflation fell outside the then 0 to 2 per cent target by 0. 1 per cent in the year to march 1996, i wrote to the minister of finance and explained that, although we were confident that inflation would be back within range by the following year, i was not confident that further breaches of the target could be avoided in the immediate future without a very aggressive further tightening of monetary policy. i noted that under all the circumstances i could not recommend such an aggressive further tightening, and indeed noted that tightening to the extent which would have been needed to reduce the risk of further breaches of the top of the inflation target in the speech by mr e a j george, governor of the bank of england, at hertfordshire university, 18 february 1999. see lars svensson, ‘ inflation targeting in an open economy : strict or flexible inflation targeting? ’, reserve bank of new zealand discussion paper, g97 / 8. immediate future ran the risk of throwing the inflation rate through the bottom of the inflation target further into the future. 4 so there is plenty of evidence that we have been ‘ flexible ’ inflation targeters from the beginning. but i suspect that we may be even more willing to be ‘ flexible ’ inflation targeters now than we were in the late eighties and early nineties, when we were at the beginning of our inflation targeting experience. this is a direct result of the fact that inflation and inflation expectations are now much more firmly anchored at a low level than was the case a decade ago. at that time, we were coming out of a period of nearly two decades of high and variable inflation, a period during which governments had repeatedly promised to reduce inflation and had repeatedly broken those promises. it was hardly surprising that, initially at least, the public greeted the news of one more approach to delivering low inflation with a high degree of scepticism. today, by contrast, even those who criticised the commitment to low inflation initially are persuaded that low inflation is likely to be around for a considerable time to come