RBNZ Sees Lower Rates but Timing Hinges on Economy: Governor Hawkesby

New Zealand’s central bank signaled it will largely look past a temporary spike in energy prices from the Middle East conflict, but warned rates could rise if inflation risks prove more persistent. Governor Anna Breman stressed on Tuesday that the duration of the shock is critical, as policymakers weigh inflationary pressures against slower growth. “A short-lived disruption and a temporary increase in petrol prices can – and should – be looked through… if unlikely to affect medium-term inflation,” she said. However, if higher energy costs begin to shape inflation expectations, “the appropriate policy response could be to increase interest rates to prevent these second-round effects.” The RBNZ has held rates at 2.25% since November after years of aggressive cuts. Breman also flagged rising uncertainty for households and businesses, arguing that targeted fiscal support would be more effective than monetary policy in cushioning the impact.

The Reserve Bank of New Zealand will expand its monetary policy meetings to eight per year starting in 2027, up from the current seven. The adjustment aims to align more closely with major central banks and give policymakers greater agility in responding to shifting economic conditions. Currently, the central bank delivers full Monetary Policy Statements at selected meetings, while others provide shorter updates. The change brings the RBNZ in line with peers such as the Reserve Bank of Australia and the Bank of England, both meeting eight times a year.

The Reserve Bank of New Zealand left its official cash rate unchanged at 2.25% at its February meeting, in line with expectations, keeping borrowing costs at their lowest level since mid-2022. The central bank signaled that policy will remain accommodative for some time, with earlier rate cuts continuing to support the economy’s recovery and gradually absorb spare capacity. While annual inflation is still slightly above the 1–3% target range, underlying price and wage pressures are easing, and inflation is projected to return toward the 2% midpoint over the coming year. Economic momentum has improved, with GDP expanding in recent quarters on firmer export prices, stronger residential and business investment, and better business sentiment, though household spending and labor market conditions remain soft. The Committee described risks to the outlook as broadly balanced and reiterated that future policy moves will be guided by incoming economic and inflation data.