RBNZ the decline in global inflation from previously elevated levels. At the same time, financial markets are currently anticipating lower policy rates over the next year.
However, “there remains a risk that new or persistent inflation pressures could mean global interest rates remain restrictive for longer, placing continued pressure on households, businesses and the financial system,” RBNZ warned in its semi-annual Financial Stability Report.
The report also observed that expectations for monetary policy easing have spurred rallies in equity markets across major economies. Yet, RBNZ cautioned that these gains could be vulnerable to a swift reversal.
“An abrupt reversal in sentiment arising from weaker-than-expected earnings or inflation remaining elevated could drag stock prices down, which would generate economic and financial risks from a market-driven tightening in financial conditions,” it warned.
