convincing new zealanders that our money is a predictably safe store of value for the relevant future. until that is achieved, the interest rate at which the willingness to save in the form of financial assets is matched by the willingness to borrow will continue to look high by international standards, and our companies will continue to seek unrealistically high rates of return on investment projects. that will tend to mean that investment is lower than it might otherwise be, and that the exchange rate will be higher than otherwise. fourthly, it is important that, while constantly aspiring to improve our national growth performance, we all have realistic expectations about the speed at which the new zealand economy can actually grow. recent reforms have undoubtedly increased our sustainable growth rate above that which was possible in the past : after several decades of growing much more slowly than other developed economies, we now seem capable of growth comparable to, and probably a little higher than, growth in many other mature economies, such as the united states and the united kingdom. but we will probably never be able to equal the growth rates achieved recently by the ‘ catch - up economies ’, while growing faster than we currently can will depend not on the central bank being a little more tolerant of inflation but on continuing improvement in many other policy areas and on sustained productivity growth. the reserve bank makes its greatest contribution to new zealand society by achieving and maintaining public confidence in the stability of the unit of value, predictably, dependably, reliably.

to, the macro - prudential facet. banking supervisors have a key role to play in this endeavour, and, indeed, have already taken an active part in its early stages. but other authorities are inevitably involved. consolidating the shift implies a greater consensus on diagnosis, remedies and allocation of responsibilities than exists at present. my remarks are intended simply as a small contribution to the building of that consensus. the changes in regulatory perspective i will discuss parallel to those in the evolution of economic thinking in the 20th century, which saw the emergence of macroeconomics as a separate discipline and, subsequently, a movement towards a longer - term horizon in policy making. in what follows, i will first try and be very precise in defining the micro - and macro - prudential dimensions of financial stability, terms which are increasingly used but have eluded a clear categorisation. i will then elaborate on the reasons why a further shift is in my view justified in the light of the nature and costs of financial instability. after tracing the implications for regulatory and supervisory policy, i will conclude by identifying broader policy co - ordination issues. you will excuse me if i am deliberately provocative, in the interest of sharpening the issues and encouraging a broader debate. i. the micro - and macro - prudential dimensions of financial stability promising discussions are often derailed by lack of precision in the definition of terms, when interlocutors think they share the same understanding but, in fact, do not. arguably, the debate on the micro - and macro - prudential dimensions of financial stability is one such example. for the sake of clarity, therefore, i will put forward two intentionally stylised definitions of the terms so as to highlight their differences. as i will portray them, they sketch the extremes of a conceptual spectrum along which the perspectives of supervisors and other authorities can then be located. while it is common to associate supervisors with the micro - prudential dimension, it will become apparent that, according to my definition, supervisory perspectives inevitably include elements of both, and that the macro - prudential element has been gaining ground in their thinking in recent years. indeed, the mix differs within the supervisory profession and may even vary with the context of the discussion. the distinction between the micro - and macro - prudential dimensions of financial stability is best drawn in terms of the objective of the tasks and of the conception of the mechanisms influencing economic outcomes. it has less to