RBNZ Governor Adrian Orr told Bloomberg TV that rebuilding after the damage by cyclone Gabrielle is expected to boost activity and raise price pressure. There is a risk that OCR might be required to stay higher for longer as a result.
“We’re looking at about a 1% addition to GDP over coming years,” Orr said. “That is well manageable within the current monetary settings. But if inflation expectations continue, if core inflation is more persistent, then tighter for longer is certainly an outcome.”
On the other hand, some of the global downside risks are “actually assisting on the inflation battle,” Orr noted. “Economies are evolving broadly as anticipated, excluding these ongoing shocks. So I’m very confident that low and stable inflation will return.”