importance of protecting private property rights if growth is to be dynamic. still others note the importance of human capital, and highlight the role of education as a determinant of economic growth. and of course there are many other relevant factors, such as the rules and regulations which may make undertaking new investments a slow and cumbersome process. getting policies in all of these areas right is crucial if trend growth is to be increased, and none of them are policies susceptible to central bank influence. conclusion so in conclusion, in these “ interesting times ” • first, the reserve bank is as committed to avoiding deflation as to avoiding inflation, and that means that we will always be leaning against the wind to the best of our ability, tending to tighten policy if inflation looks likely to rise in the future, and tending to ease policy if inflation looks likely to fall below the bottom of our target. • second, the new zealand economy is well - placed to weather the international slowdown, with moderate growth, low unemployment, an exchange rate which is providing useful support for export and import - competing industries, and ample scope for further easing of monetary policy if that should prove necessary. • third, even with the best will in the world, the best economists in the world, the most regular contact with companies up and down the land, monetary policy can never provide you with complete protection against the vagaries of life, whether these vagaries come in the form of international crises or in the form of some dramatic domestic development. • and fourth, monetary policy doesn ’ t determine the economy ’ s long - term growth rate - that is determined by a whole range of factors which have nothing directly to do with the reserve bank. sometimes the reserve bank will need to leave monetary policy unchanged for months on end. sometimes we will need to adjust interest rates in small incremental steps, as earlier in the year. and sometimes we will need to adjust rates more aggressively, as over the last couple of months. different circumstances will require different responses. but what i can say is that, in “ interesting times ” as in normal times, the role of monetary policy is to help and not to hinder, and that is what we are committed to doing.

go negative, you can be sure we would be very active indeed in stimulating the economy. it ’ s been said that any fool can keep inflation down, and that ’ s true, but our task is much more demanding than that. i know our rhetoric is mostly about the economic and social costs of inflation, rather than about the economic and social costs of deflation. that ’ s because, at least in new zealand, inflation has been much the more common problem, certainly for the last 60 years. also, because new zealand went through a period of quite high inflation in the seventies and eighties, we have had to work hard to persuade people that we are serious about keeping inflation down, in order to bring down inflationary expectations. but make no mistake. inflation going below zero would be just as much a breach of the reserve bank ’ s inflation target as having it go above 3 per cent. deflation causes its own set of economic problems and distortions, doing social and economic damage. and our policy deliberations are always, without exception, mindful of both risks. we are always trying to find the policy setting - the interest rate - which will deliver an inflation outcome which is neither too hot nor too cold. preventing deflation is also part of the law under which i operate. the reserve bank act 1989 makes it clear that monetary policy must deliver “ stability in the general level of prices ”. and the policy targets agreement which i have with the minister of finance, a requirement of the reserve bank act, defines “ stability in the general level of prices ” as inflation measured by the consumers price index of between zero and 3 per cent. deflation is not “ stability in the general level of prices ”, any more than inflation is. this means that, once price stability has been achieved, and as a very rough rule of thumb, the reserve bank ’ s monetary policy will be seeking to restrain inflationary pressures by raising interest rates roughly half the time, and will be seeking to restrain disinflationary pressures by lowering interest rates roughly half the time - as we did in the second half of 1998 and as we have been doing through most of this year. new zealand goes into this world slowdown in a strong position secondly, although new zealand will be affected by the world slowdown, we are not completely hostage to external events. it is important that we don ’ t talk ourselves into a gloomy frame of mind just because the slowdown in the world economy could be