Stability of financial system benefits and promotes (i) smooth and efficient financial intermediation processes that allocate savings to profitable investment opportunities; (ii) balanced development of different segments of financial system; and (iii) proper transmission of monetary policy, whose effective conduct and implementation in turn facilitates price stability. 3. Price stability and financial stability tend to mutually reinforce each other in the long run.
Figure 3: Annual house price inflation 40 30  %  %  40  Auckland Rest of New Zealand  30  20  20  10  10  0  0  -10  -10  -20  2000  2003  2006  2009  2012  2015  -20  Source: REINZ  LVR policy has been aimed at reducing financial stability risks as house prices became increasingly stretched.