RBNZ Silk warns against premature rate cut expectations

RBNZ Assistant Governor Karen Silk advised caution against pricing in rate cuts too prematurely. In her comments, Silk stressed that RBNZ has reached a juncture where it can “take a pause and watch how this evolves,” ensuring that “you don’t overdo things.”

However, Silk emphasized that it’s core inflation that the central bank is focused on bringing down, and this will require maintaining the current rate levels for an extended period. “We’ve said we need to hold for an extended period of time to ensure core inflation comes down; it’s core inflation that we need to get down,” she stated.

She explained the bank’s holistic approach to assessing economic conditions, saying, “We look at economic data, but we also look at transmission,” Silk explained. “If at a wholesale level and most importantly at a retail level we start to see those things come off faster, then that’s one of the things we take into account when we think about where we set the OCR.”

In terms of the inflationary impact of Cyclone Gabrielle, Silk indicated that its effect has been less severe than initially anticipated. RBNZ had initially projected the storm would add 0.3% to inflation in both the first and second quarters. Still, it has since revised this down to just 0.1%, citing that while the storm led to increased food costs, it didn’t inflate the prices of other goods such as used cars.