RBNZ stresses vigilance on inflation, prepared to raise rates if necessary

In an interview today, RBNZ Assistant Governor Karen Silk highlighted the central bank’s readiness emphasized that there are “risks still to the upside in the near term” regarding inflation. She stated that RBNZ is “absolutely” prepared to raise interest rates if necessary, adding, “Right now we are saying that the level of restrictiveness is there, but we are awake at the wheel.”

Silk pointed out that the central bank’s primary concern is domestic inflation, particularly noting the significant miss last quarter when non-tradables inflation hit 5.8%, compared to RBNZ’s forecast of 5.3%. “Our concern is in that near term, around what are we really seeing in terms of domestic aligned inflation,” she explained.

Separately, Deputy Governor Christian Hawkesby reinforced the cautious stance, stating that “cutting interest rates is not part of near-term discussion.” He acknowledged the near-term inflation risks are to the upside but expressed confidence that medium-term inflation is returning to target.

Hawkesby emphasized that no single data point will trigger a rate hike, but the bank is closely watching domestic inflation pressures and expectations. He also noted the significant uncertainty surrounding tradable inflation moving forward.

RBNZ’s central projection is for headline inflation to fall back into its 1-3% target band by the fourth quarter of this year. However, the bank now projects that it won’t achieve its 2% goal until mid-2026.