RBNZ Governor Anna Breman warned that the Middle East conflict is likely to push New Zealand’s economy into a more challenging environment of higher inflation and weaker growth. Speaking today, she said policymakers expect “higher headline inflation over the near term, and somewhat weaker growth momentum,” highlighting the stagflationary nature of the shock stemming from elevated energy prices and global uncertainty.
Beyond inflation and growth, Breman pointed to “global financial stability risks”, noting that global stress could affect funding conditions for New Zealand banks. However, she emphasized that the domestic banking system remains resilient, with strong capital and liquidity buffers. Recent stress tests suggest banks are “well-placed to weather severe geopolitical shocks,” offering some reassurance despite the volatile global backdrop.
On policy, Breman stressed the importance of avoiding a premature response to “temporary inflation spike” that monetary policy cannot directly address, while also guarding against the risk of inflation becoming entrenched. The committee will remain vigilant to ensure that temporary price pressures do not translate into persistent inflation, reaffirming that delivering low and stable inflation over the medium term remains the central objective.
