past. indeed, new zealand households have been consuming more than their income for many years. the household saving rate has been negative since the early 1990s, and strongly negative since 2002. why have new zealand households been able to run down their saving rate to the point of substantial dissaving? the answers echo the reasons identified in the previous section : lower note the weight of construction costs in the cpi basket was reduced from 9 percent to 4. 7 percent in the 2006 cpi review. see the reserve bank ’ s submission to the fec inquiry into the future monetary policy framework. interest rates which have enabled households to service a higher level of debt ; financial innovation which has eased credit constraints ; and generally buoyant employment conditions. 17 in terms of household balance sheets however, net wealth ( the difference between assets and liabilities ) has increased, despite the negative saving rate. this is because the revaluation on the asset side ( the gain in house prices ) has outweighed the increased borrowing secured on housing ( the increase in household liabilities ). new zealand households are not alone in consuming more than they earn. both in australia and the us household saving rates are negative ( figure 8 ). household savings rates in other advanced economies are also falling, but are not yet negative. however, at - 14. 6 percent, new zealand is clearly an outlier. the decline in household saving also accounts for a large part of the decline in total national saving ( household + corporate + government savings ) across the advanced economies. 18 fig 8 : household saving rates ( percent of disposable income ). source : oecd ; statistics nz. to what extent is this ability to consume more out of income and the associated decline in the national saving rate sustainable? in one sense lower national saving implies lower standards of living in the future. at the moment, our national saving is lower than current investment, and the shortfall is funded by borrowing from overseas. 19 this situation is unlikely to persist indefinitely as the budget constraints on households will at some point start another factor that could be influencing new zealand household ’ s savings decision is the fact that government savings is strongly positive – household ’ s may feel they do not have to save as much for their future if the government is doing it for them. advanced economies in general are currently saving too little relative to their current levels of investment. the flip side of this macroeconomic imbalance is that emerging market and developing economies are saving too much relative to their

term economic growth prospects beyond our stable inflation contributions. undoubtedly we are in new low inflation and interest rate territory collectively. colleagues were interested to hear about each others ’ experiences and our recent decision to cut the official cash rate by 50 basis points – as were most new zealanders. first, the interest rate lever is blunt. it is not personalised. savers ( investors ) and consumers are treated equally, and are often the same person doing various activities. we make our interest rate decision to best bring about prosperity and wellbeing of all new zealanders in the long - term. this decision is repeated frequently – aimed at the same inflation and employment goal – as circumstances change. 1 / 2 bis central bankers'speeches our recent ocr cut reflected an expected decline in trading partner growth, lower nz inflation expectations, and a global swing to lower interest rates. it also reflected the ongoing funk global and domestic business confidence is in. geopolitical uncertainty is paralysing decision making in major business centres – trade tensions, brexit, hong kong, north korea and so on – have all meant investment is lower than normal. the nz waka is tied off to the global ‘ risk free ’ interest rate wharf. when the global rate declines, we need more rope – or face a rising exchange rate and tighter financial conditions than needed. second, how you respond to lower interest rates is personal. lower interest rates stimulate investment ( funding costs are lower as are expected hurdle rates of return ). income derived from passive savings in the bank is lower – prompting more active investment decisions. asset prices rise as the present value of their future earnings rises. and spending – both government and the public – becomes more affordable, at least until consumer prices start to rise again. and a lower than otherwise nz dollar will promote export earnings. so how you feel about low nominal interest rates personally comes down to which of the activities you may be involved in. the central bank can only focus on the long - term wellbeing of all. there are different outcomes for different people. home owners may feel wealthier, those outside of this asset market would be facing a higher price to buy but at more affordable servicing costs. savers in low risk deposits will need to invest more actively – and so on. finally, a key concern amongst my international colleagues is that central banks are being tasked with more and more challenges – and public expectations continue to rise also. the discussion was clear. monetary policy ( the domain of central banks