Governor Breman urges patience on rate moves as inflation risks re‑emerge
New Zealand mortgage advisers face a more complicated rate backdrop as the Reserve Bank (RBNZ) weighs the impact of the Iran conflict on inflation, growth, and funding costs.
In a speech titled Global shockwaves to Kiwi shores: The impact of the Iran conflict on New Zealand, Governor Anna Breman said the bank remains “well positioned” to handle the challenges to its price and financial stability mandates.
Breman warned that we are likely to see higher headline inflation over the near term, and somewhat weaker growth momentum", as higher oil prices and supply chain disruptions feed through. However, she stressed that the Monetary Policy Committee (MPC) will focus on medium‑term inflation rather than reacting to every spike in petrol prices.
Westpac economists said the key message is that there is little evidence yet to justify near‑term OCR hikes, with the duration of the conflict likely to be crucial. That implies the official cash rate is unlikely to move quickly in either direction, even as wholesale market volatility keeps fixed mortgage rates and swap curves under pressure.
RBNZ wary of over‑reacting to oil‑driven inflation
Breman outlined the framework the MPC will use to judge any response to the Middle East shock.
“Getting this judgement right is key to avoiding reacting too early to near-term inflation pressures that monetary policy can do little about – or reacting too late if above-target inflation becomes embedded in the economy,” she said.
The governor emphasised that “monetary policy can and should ensure that a temporary inflation spike does not turn into enduring inflationary pressures” and that the committee will be “vigilant to this risk”.
In Westpac’s First Impressions, economists Kelly Eckhold and Darren Gibbs said RBNZ is “sticking to the playbook” by looking through first‑round oil effects and only considering earlier rate hikes if there is clear evidence of second‑round wage and price pressures over time.
With the economy still operating below capacity and household and business balance sheets described as “more fragile”, RBNZ argues it has some space to assess how far the shock spills into inflation over the coming years before changing course.
For now, Westpac expects it is “unlikely the RBNZ will be raising rates in the next six months,” but also sees OCR cuts as unlikely while the bank assesses the shock. That leaves borrowers and advisers facing a period of real interest rates that remain negative, even as global and wholesale funding costs stay volatile.
See the RBNZ media release for more information.
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