of each measure since 2009, moving from very loose on the left to very tight on the right. the pink dot shows the current value, while the blue dot shows the values at the start of the year. these indicators paint a similar picture to our neutral interest rate estimates. wholesale, bank lending, and bank deposit rates all remain broadly restrictive. this is despite some loosening over 2024 as markets anticipated the start of the easing cycle. home loan interest costs as a proportion of disposable income have risen to their highest level since 2010 but remain lower than the period following the global financial crisis ( gfc ). conversely, bank credit has remained more accommodative, in line with strong bank funding positions. the downstream effects on the domestic economy also indicate the stance has been restrictive. high interest rates are reducing demand in new zealand. weak household consumption and business investment, easier labour market conditions and lower wage growth, along with declining inflation expectations, are providing reassurance that our monetary policy stance has been sufficiently restrictive to support cpi to fall back to our target mid - point. monetary policy transmission to financial conditions during the recent tightening cycle transmission from a change in the ocr to domestic financial conditions occurs in two stages. 6 during the first stage, policy rate changes and expectations for future interest rates influence the level and direction of wholesale interest rates. figure 3 : ocr and new zealand wholesale rates source : rbnz, bloomberg short - term rates are more heavily influenced and responsive to the level of, and near - term expectations for, the ocr, while longer - term rates can be significantly influenced by broader factors like inflation expectations and global investor risk sentiment. as a result, the magnitude and pace of influence on long - term rates can vary significantly7. _ _ _ _ _ _ _ _ _ _ _ _ 6 for example, see lane ( 2022 ), mann ( 2023 ) and rbnz ( 2024 ). 7 see lewis and rosborough ( 2013 ). for example, market expectations for higher global inflation during 2021 contributed to higher long - term global interest rates8. we can see in this chart that this led the new zealand 10 - year swap rate to increase earlier than short - term wholesale rates and the ocr. the second stage is the transmission from wholesale rates to bank lending and deposit rates. during a tightening cycle, banks face higher funding costs which they pass through to higher lending rates. higher debt servicing costs reduce free cashflow and

andreas dombret : systemic risks of shadow banking speech by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the salzburg global seminar “ out of the shadows : should non - banking financial institutions be regulated? ”, salzburg, 20 august 2013. * * * when talking about shadow banking we should be clear what we mean. i subscribe to the fsb ’ s definition of “ credit intermediation involving entities and activities outside the regular banking system ”. what i deem to be relevant from my financial stability perspective is that such entities create bank - like risk without being subject to banking regulation. obviously, the non - banking financial sector is composed of a very heterogeneous set of agents. some of them – such as insurance corporations and pension funds – usually have very long - term investment horizons and can therefore potentially serve as a stabilising element for the financial system. to be clear on this point : i firmly believe that insurance corporations can be systemically important institutions, too. thus, effective resolution regimes for global systemically important insurance corporations need to be developed and implemented. the overall effects of the so - called shadow banking system and its activities on financial stability are ambiguous. theoretically, non - banking financial institutions that perform banklike activities are associated with diversification and specialization benefits. therefore, it could be assumed that they contribute to efficiency gains and greater financial system resilience. however, empirical evidence from the financial crisis suggests that the activities of shadow banking entities might often be driven by the motive of exploiting regulatory arbitrage. altogether, the economically beneficial attributes and systemically stabilising effects of entities and activities of the shadow banking system are not always that obvious. in particular, developments prior to the financial crisis revealed that the activities and entities of the shadow banking system can also pose a threat to the stability of the financial system as a whole. the risks inherent in the shadow banking system pertain to both dimensions of systemic risk : the cross - sectional ( interconnectedness ) dimension as well as the time - serial ( procyclicality ) dimension. i see these potential threats as being caused mostly by maturity and liquidity transformation, the build - up of leverage and credit risk transfer conducted by the shadow banking system. all of those activities are not evil per se, but the ensuing systemic risks need to be contained. all activities must be made transparent, in particular vis - a - vis supervisory authorities, and they must be