, truong, and vehbi ( 2019 ). 13 kent ( 2015 ) ; kent ( 2019 ). 14 jacob and van florenstein mulder ( 2019 ). figure 7 : monetary policy transmission15 ocr new zealand dollar exchange rate market interest rates lending rates inflation expectations deposit rates import prices debt servicing costs imports exports house prices saving borrowing consumption investment gdp employment inflation source : reserve bank of new zealand, monetary policy handbook. even with the same debt levels, lower interest rates reduce servicing costs and free up cashflow. lower interest rates will also be associated with higher asset prices, creating a wealth effect through to consumption. 16 furthermore, many of the other channels, such as the exchange rate channel, will still work regardless of debt levels. finally, it fits with recent experience that monetary policy does still have bite even in this low interest rate world. in new zealand, we lifted the official cash rate by 100 basis points over the course of the first half of 2014 to head off an expected increase in inflationary pressure. when this did not arrive as expected, the tightening in monetary policy ended up being one factor that contributed to the slowing in the economy into 2015. internationally, we have also seen the us federal reserve tighten monetary policy through to 2018, and this is one factor that has contributed to the moderation in us growth and inflationary pressure into 2019. these are ongoing examples of monetary policy continuing to play a key role in inflation dynamics. so if we think that inflation dynamics are changing and that monetary policy is still an effective tool, how are we applying that in new zealand ’ s current economic environment? 15 more on the transmission mechanism and other topics can be found in the monetary policy handbook, available at https : / / www. rbnz. govt. nz / monetary - policy / about - monetary - policy / monetary - policyhandbook. 16 wong, ( 2017 ). our august 2019 monetary policy statement as our monetary policy committee met earlier this month, our starting point was a new zealand economy where the labour market was operating near maximum sustainable employment, but annual core inflation remained persistently below the 2 percent mid - point of our target range. we discussed the slowdown in global growth and global risks that lay ahead, and how this might affect new zealand. we also addressed the loss of momentum in the domestic economy since mid - 2018, through both tempered household spending and restrained business investment. as part of the assessment, our discussion also touched on the decline that had occurred

believe that any possible loss in momentum toward achieving the price stability target needs to be preempted. to further clarify the bank's stance on monetary policy conduct in the current situation where downside risks to economic activity and prices are significant, the bank stated at the monetary policy meeting ( mpm ) held in july 2019, that it " will not hesitate to take additional easing measures if there is a greater possibility that the momentum toward achieving the price stability target will be lost. " there are various possible measures for additional easing, such as cutting the short - term policy interest rate, lowering the target level of 10 - year jgb yields, expanding asset purchases, and accelerating the expansion of the monetary base. given that, recently, slowdowns in overseas economies have continued to be observed and their downside risks seem to be increasing, it is becoming necessary to pay closer attention to the possibility that the momentum toward achieving the price stability target will be lost. while taking this situation into account, the bank will reexamine economic and price developments at the next mpm in october. iv. challenges for japan's economy i would now like to express my opinions regarding japan's current economic situation from a longer - term perspective. according to the bank's estimates, the potential growth rate has been in the range of 0. 5 - 1. 0 percent recently. although the rate has risen compared to around 2010, it can be said that japan's growth potential has been sluggish of late. this is also an indication of the various challenges that japan faces in achieving a rise in productivity. for example, it is difficult in japan to establish business models through which firms can benefit from economies of scale, and where cost efficiency improves along with an expansion of business size. although japan's economy is the world's third largest, it is far smaller than that of the united states or china, and smaller also than that of the eu taken as a whole. let me note that the rise of chinese firms is backed by a rapid expansion of the chinese economy. i think that the sluggish improvement in productivity among japanese firms in recent years is partly attributable to the economic situation in japan that i just outlined. cross - border mergers and acquisitions undertaken by japanese firms recently can be considered as one of the initiatives addressing the challenges. however, managing foreign firms is a new experience for many japanese firms, and is likely to be quite difficult as there are a number of issues