have an effect on the external balance sheet. from a policy perspective, there are no magic bullets for running better current account balances. however, there are a range of policy areas underway that can certainly make a positive difference : continuing to move new zealand ’ s tax system in favour of saving rather than consumption. ensuring fiscal policy remains focused on achieving a conservative path for the public debt. ensuring that our framework for financial regulation discourages excessive rates of credit expansion and excessive leverage. the core funding requirement for banks is already resulting in a lengthening maturity structure for their offshore borrowings which has helped them reduce their exposure to recent financial market volatility. continuing to search for ways to help ensure that monetary policy adjustment is not borne excessively by the tradables - producing industries. however some of this will continue to be dependent on how other countries run their exchange rate policies. ensuring that public policy facilitates investment activities that achieve sustainable real returns and does not inadvertently encourage activities that are of little lasting economic value. but this challenge is not primarily up to the government. it mainly requires the changes that we are seeing in household behaviours to continue. helping them are higher returns for bank deposits, revamped regulation of financial advisors, investment offers and finance companies, more attention to financial literacy, and a rising interest rate track which favours savers. more of these savings will be in asset areas other than property and some of them will be in overseas investments. ultimately the onus is on households to continue the current trend of saving more and investing better.

alan bollard : new zealand ’ s economic recovery, external vulnerabilities and the balancing act ahead speech by mr alan bollard, governor of the reserve bank of new zealand, to the wellington regional chamber of commerce, wellington, 14 june 2010. * 1. * * how is our recovery going? we have been out of recession for a year now, and we can take stock of the recovery so far. we hit a trough in the new zealand economy in the second quarter of 2009, marking a turning point after a year during which we contracted a total 2. 2 percent. this was a long and deep recession by our standards, but compared with other oecd countries, we got through reasonably lightly. a period of fragile stimulus – assisted growth followed. we have now removed most of the temporary liquidity measures that we introduced during the crisis. we believe we are in a more robust growth situation, and that is why we have judged this to be the right time to start removing monetary policy stimulus and move towards more normal policy settings. the recovery has been assisted by strength in our asian - australian trading partners, and in our international commodity prices. we have been enjoying very strong export price growth by the standards of the last two decades. while it will take time to confirm this, there is evidence that we have moved to a stronger terms of trade track, and this is clearly good for our growth future. the domestic recovery has been much more muted. both the business and household sectors have been through harsh times and this has changed their behaviours – they are reducing debt and reassessing their spending. understanding how much these are temporary or enduring behaviours, is complicated by the tax and spending changes announced in the recent budget. these will likely rebalance investment from property to other assets but it is too early to be clear about this. in addition, the indirect tax changes will offset the pattern of consumption. the overall effect is that we expect a gradual recovery in business investment, housing and general consumption, but off a low base, and less funded by debt than in the past. the greek fiscal crisis, the subsequent european support package, and the resulting financial market concerns have not changed our central view about economic recovery, but they have certainly given us food for thought about the strength of european markets for our exports, about the robustness of the term funding markets for our banks, and about financial market tolerance for fiscal deficits. we will keep watching these developments closely. 2.