at : sep - 97 sep - 98 4. 3 2. 9 2. 8 3. 3 2. 4 - 6. 4 3. 2 0. 7 7. 9 - 8. 1 6. 4 4. 6 5. 4 - 4. 7 15. 1 9. 4 9. 8 - 16. 2 10. 1 - 5. 1 4. 8 - 13. 1 4. 4 - 0. 5 forecast as at : jan - 98 sep - 98 3. 3 2. 4 2. 2 2. 4 1. 6 - 1. 9 2. 6 1. 3 4. 3 1. 6 6. 0 4. 7 4. 0 - 2. 8 12. 8 9. 9 5. 9 - 0. 3 7. 1 0. 5 3. 0 0. 3 3. 4 1. 4 * gdp two points are striking. firstly, the extent and pervasiveness of the reduction in expected output over the course of the last year are enormous. by any historical standards, the region has suffered a very serious growth shock. secondly, the current consensus view for 1999 does not envisage any substantive recovery for the region. at best, it is suggestive of stabilisation at the new, lower, levels of activity. note that the track of the past year or so has been one in which the consensus growth forecasts have been repeatedly revised downward as they incorporated emerging news and data. there is no clear sense yet that that process has run its course. note also that the latest growth outlook still assumes a fairly benign, and frankly implausibly optimistic, growth path for china, the usa and europe. as noted earlier, it is impossible to get a firm grip on the near - term prospects while the contagion unleashed in thailand in july of 1998 is still working its way around the globe. all going well, china, the usa and europe will be able to sustain their positive growth paths, and will provide the pillars around which the affected countries can resume their growth. i think that is still the most likely scenario. but other, realistic, and much less comforting, scenarios can be conjured up with disturbing ease. developments in financial markets over the past couple of weeks tip the balance even more in the direction of the pessimists. even the scenario of continued modest growth involves some very harsh transitions for asia. i will focus on primarily one aspect of that transition - namely the enormous damage that has been wrought

experience was somewhat limited. in may 2013 we entered into a memorandum of understanding with the minister of finance, under which the rbnz initiates any macroprudential policy action, but only after consultation with the treasury and minister1. in practical terms, this meant that adjustments to _ _ _ _ _ _ _ _ _ _ _ _ see ‘ memorandum of understanding between the minister of finance and the governor of the reserve bank of new zealand ’. memorandum of understanding between the minister of finance and the governor of the reserve bank of new zealand - reserve bank of new zealand ( rbnz. govt. nz ) macroprudential settings could be undertaken by the rbnz but major alterations ( such as the introduction of new tools ) requires consultation. initially, the macroprudential tools that we introduced were lvr restrictions on residential mortgages and core funding ratios for banks. while we introduced core funding ratios, we have only rarely adjusted them, so i will focus here largely on our experience of lvrs. figure 1 : house price growth in new zealand the first shaded area is the tightening phase, the second is the easing phase, and the final is the covid19 phase. our experience of macro prudential tools our experience of managing macro prudential tools since 2013 has broadly involved four phases. all decisions since in 2013 can be found in the annex. initial settings ( 2013 - 2015 ) when we first introduced lvr restrictions, our main concerns were that rising house prices, particularly in auckland, but also christchurch, would lead to vulnerabilities in the financial system. our analysis suggested that the main causes of the rising house prices were housing supply shortages and easy credit. we saw that banks were competing strongly for borrowers with low deposits and so by tightening lending criteria we felt that we could slow the rapid expansion of credit that was fuelling the house price growth. we were actively seeking to influence house prices. the rbnz governor at the time stated that " [ t ] he lvr restrictions are designed to help slow the rate of housing - related credit growth and house price inflation, thereby reducing the risk of a substantial downward correction in house prices that would damage the financial sector and the broader economy … in the current situation, where escalating house prices are presenting a threat to financial stability but not yet to general inflation, macroprudential policy offers the most appropriate response. " 2 the initial settings of the lvr restrictions in october 2013 were that banks could not issue