Governor’s comments ease near‑term hike odds but risks remain for mortgage rates
The Reserve Bank (RBNZ) has signalled it is in no rush to lift the official cash rate (OCR), despite headline inflation surprising on the upside.
Governor Anna Breman told a Hamilton audience that “the Reserve Bank remains focused on balancing inflation control with supporting economic recovery,” reiterating that monetary policy must ensure a temporary price spike does not become “enduring inflationary pressures.”
Breman’s remarks followed Q1 CPI data showing annual inflation at 3.1%, slightly above what RBNZ had anticipated at its 8 April review.
The RBNZ leader highlighted that measures of underlying price pressure “have remained stable within the target band.” That message, combined with softer business and consumer confidence readings, has seen markets scale back the probability of an OCR hike at the 27 May meeting to around 25%, from about 60% earlier in the week.
Westpac senior economist Darren Gibbs (pictured) said Breman’s comments “suggest that the RBNZ will take the time necessary to fully understand the nature and implications of the conflict before deciding how it should respond.” The bank still expects the first rate increase in September, rather than mid‑year.
Surveys point to softer growth, contained wage pressures
The backdrop is one of weaker sentiment but still‑solid activity. The latest ANZ Business Outlook survey shows firms’ own‑activity expectations have halved, while hiring and investment intentions have slipped into marginally negative territory. That points to slower labour demand, contained wage growth, and less immediate pressure for aggressive tightening.
On the inflation side, businesses now expect higher costs over coming months and have lifted their year‑ahead inflation expectations. Yet wage growth expectations have eased towards 2.5%, suggesting some resistance to a wage‑price spiral even as households face higher living costs and tighter budgets.
Commenting on the latest ANZ survey, Gibbs noted that “overall, this survey portrays the picture we expected to see a few weeks ago when we significantly downgraded our view on growth through mid‑2026.”
Global shocks, local impacts – but no sudden lurch in rates
In the Waikato panel discussion, Breman noted that “the Middle East conflict has disrupted global supply chains, pushing up prices for oil, fertilisers, and other goods facing shortages,” but stressed that “the best contribution monetary policy can make is to remain focused on ensuring aggregate inflation returns to 2 percent over the medium term.”
For now, RBNZ appears willing to look through fuel‑driven inflation and monitor second‑round effects via the labour market.
See the full Westpac report for more insights.
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