FX.co ★ Rate Hikes Possible if Inflation Lingers: RBNZ Governor Breman

New Zealand’s central bank has indicated it will largely look through a short-term spike in energy prices stemming from the Middle East conflict, but cautioned that interest rates could rise if inflation risks become more entrenched. Governor Anna Breman emphasized on Tuesday that the length of the shock is crucial, as policymakers balance inflationary pressures against weakening growth.

“A short-lived disruption and a temporary increase in petrol prices can – and should – be looked through, provided they are unlikely to affect medium-term inflation,” she said. However, if higher energy costs start to influence inflation expectations, “the appropriate policy response could be to increase interest rates to prevent these second-round effects.”

The Reserve Bank of New Zealand has kept its policy rate at 2.25% since November, following several years of aggressive cuts. Breman also highlighted growing uncertainty for households and businesses, arguing that targeted fiscal support would be more effective than monetary policy in cushioning the impact.