the overall increase in the ocr, which was greater in new zealand. transmission via this channel for both new zealand and australia occurs faster than for many other economies. for example, in the us and some european countries, where 25 - or 30 - year fixed rate mortgages are fairly common10. despite this, monetary policy is still effective in these countries, with other transmission channels playing a more important role11. figure 5 : average outstanding mortgage rates in new zealand and australia source : rba and rbnz while the effectiveness of various monetary policy transmission channels can differ across countries for structural reasons, these can also differ within countries but across business cycles depending on the prevailing economic and financial environment. _ _ _ _ _ _ _ _ _ _ _ _ 10 international monetary fund ( 2024 ) provides insight into the effects of monetary policy across countries through the lens of the mortgage and housing markets. 11 this point is covered in more detail in kent ( 2023 ). an example of a cyclical factor is the ongoing influence of the covid - era fiscal expansion and monetary policy easing. a combination of fiscal policy measures such as the covid - 19 wage subsidy and the implementation of additional monetary policy tools in new zealand, led to a significant increase in liquidity within the financial system contributing to strong deposit growth in commercial banks and an abundance of liquid assets. in turn this bolstered banks ’ stability with prudential liquidity measures12 rising well above their minimum requirements. alongside this, the composition of bank deposits changed significantly with deposit volumes shifting from more traditionally expensive term to cheaper on - call deposits, in part driven by a narrowing in the difference in rates as supply increased13. this chart shows how the proportion of savings held in term deposits, in blue, quickly declined during the covid period, as the rate premium for holding term deposits relative to on - call savings accounts fell. figure 6 : saving deposit rates and the term deposit share of total saving deposits source : rbnz bank balance sheet survey, rbnz estimates deposits account for around 65 percent of total bank funding in new zealand and so the change in composition and overall increase in supply contributed to a significant decline in bank funding costs through that period. as wholesale rates began to increase from mid - 2021 in line with more restrictive monetary policy, banks were however able to maintain lower term and on - call deposit rates for longer largely as a consequence of the higher covid - period level of savings, higher levels of liquidity, and weakening credit

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