the us and in global financial markets drove a significant downturn in demand for new zealand ’ s exports and damaged business and consumer confidence. conclusion our modelling work indicates that the real effective exchange rate is above the level that can be justified by cyclical economic variables and that its current level is unsustainable over the longer term. the nominal twi is currently 4 percent below the historical high reached in july 2014. this decline in the twi is small in relation to the 45 percent fall in global dairy prices since february 2014. we expect a significant further depreciation of the exchange rate as a result of the weakening in price of our dairy and log exports. past experience suggests that when the new zealand dollar begins depreciating from an unjustified and unsustainable level, the ultimate adjustment can be large. some of this reflects the limited overall liquidity in the new zealand dollar markets, and the potential for pricing discontinuities when overall investor sentiment changes markedly and investors cut or exit their positions in volume. several factors could cause such a change in financial market sentiment. these include a deterioration in global risk appetite as the result of an adverse economic or geo - political shock, further declines in new zealand ’ s commodity export prices, a slowing in new zealand ’ s or china ’ s economic growth, and stronger indicators of economic growth in the us. under the current us outlook, the federal reserve is expected to start raising interest rates in the second or third quarters of next year. a stronger outlook for the us economy would likely trigger greater investor flows into the us dollar on the expectation that the federal reserve would begin to tighten sooner. bis central bankers ’ speeches in the reserve bank ’ s view, the combination of these factors makes the new zealand dollar susceptible to a significant downward adjustment over the coming six to nine months. such an adjustment would be welcomed by the bank as a move towards a more sustainable exchange rate level. bis central bankers ’ speeches

is often associated with the culture of technology companies - a " move fast and break things " philosophy that can be incompatible with prudent banking practices. prudent banking, in contrast with a startup culture, requires a cautious approach to new business models, a recognition of and respect for operating in a regulated industry, and an appropriate degree of expertise and oversight. merging these philosophies - the need to innovate in an increasingly competitive banking industry, and the need to have management and board oversight that is appropriate in the highly regulated banking system - can be difficult but is critical for long - term success. having appropriate expertise to engage in new activities within a bank can be particularly challenging with the seemingly constant advent of new 4 / 7 bis - central bankers'speeches technologies, like artificial intelligence, that have the potential to transform banking. while innovation in banking is important, banks may have difficulty attracting relevant expertise. but with the potential of new technologies comes grave responsibilities to ensure that they are well understood, well - managed, and used appropriately when they are introduced in a banking environment. the banking system is not an unregulated petri dish. regulators play a vital role in making sure the banking system is safe and sound in light of these evolving risks. at a threshold matter, regulators must consider the many tradeoffs involved in how to support banks in their quest to be agile in offering new services and responding to new and evolving risks, and in how to appropriately identify, supervise, and regulate these risks. in my view, one of the most important roles of regulators in the face of changes to the banking system is to support responsible innovation as banks provide credit to their communities and customers. 3 in doing so, they must provide clear guidance to regulated institutions to help facilitate effective risk management, and support safety and soundness. the " start - up " mindset can be a particular challenge for regulators, as the communication of traditional supervisory messages may not resonate when delivered to directors and bank management that are not accustomed to interacting with examiners, or who are unfamiliar with operating a business in a regulated industry. in these situations, regulators must communicate clearly to ensure bank leadership understands and recognizes that safety and soundness must always be a key priority. the approach of asking forgiveness instead of permission is not compatible with the banking system. neither regulators nor banks have the ability to predict the future, and yet as we look back on large structural shifts in the banking system, many of these longer - term trends