Reserve Bank of New Zealand governor Anna Breman warned that persistently higher global oil prices could lift near-term inflation above the central bank’s September forecast. She said longer-term interest rates and the oil increase reflected a challenging global environment. The comments were issued during a regional visit to Dunedin ahead of the bank’s next monetary-policy decision on 28 October.
The RBNZ raised the official cash rate by 25 basis points to 2.75% at its September meeting. It projected a more gradual path for further tightening than financial markets had expected. The bank forecast that annual consumer-price inflation would ease to 3.9% in the September quarter from 4.1% previously.
RECOVERY REMAINS UNEVEN
Breman said New Zealand’s economic recovery should strengthen and broaden, supported by resilient exports and a gradual increase in household spending. The latest quarterly data showed gross domestic product grew by 0.2% in the three months to June despite higher oil prices and other global headwinds.
Conditions differed across regions, according to the central bank. Parts of the South Island showed stronger activity, supported by exports, lower unemployment and firmer housing-market performance than many other areas.
OCTOBER DECISION DEPENDS ON DATA
The governor said the bank would assess incoming data and global developments before its October decision while maintaining a medium-term focus on inflation. Reuters reported that market pricing implied a 75% probability of another increase, which would take the official cash rate to 3%.
The persistence of oil prices and evidence of pass-through into domestic costs will therefore be central to the next review. The 28 October decision will show whether the inflation risk outweighs the still-uneven recovery and warrants another rate increase.