Reserve Bank of New Zealand Governor: Will decisively raise interest rates if core inflation rebounds, economic growth will slightly weaken in the short term.

As the Middle East conflict pushes up fuel prices, Reserve Bank of New Zealand Governor Anna Breman said on Thursday that if there are signs of accelerating core inflation, the Reserve Bank of New Zealand will respond with interest rate hikes. Breman said, "From an inflation perspective, the risk balance has shifted, with more upside risks. We expect economic growth to weaken slightly, but we are concerned that medium-term inflation pressures may be higher. If we see medium-term inflation start to rise, then we will act decisively, which means raising interest rates." Breman made the above remarks the day after the Reserve Bank of New Zealand announced its latest interest rate decision. The Reserve Bank of New Zealand on Wednesday decided to keep the Official Cash Rate (OCR) at 2.25%, the lowest level in nearly four years, in line with market expectations, and reiterated its intention to ignore the initial inflation impact of soaring fuel prices. At the same time, the Reserve Bank of New Zealand emphasized its firm commitment to bringing the inflation rate back to the midpoint of its target range of 1% to 3%. The central bank expects inflation to rise to 4.2% in the second quarter, but did not provide a complete forecast for this indicator or the path of the Official Cash Rate. In its statement on Wednesday, the Reserve Bank of New Zealand also stated, "If the short-term rise in inflation is mainly temporary, the committee expects to gradually adjust the OCR to a more neutral level as economic activity recovers and short-term inflation pressures subside." "However, if there are clear signs of a second round of inflation effects, or if medium-term inflation expectations rise, it will be necessary to raise the OCR decisively and promptly to re-anchor inflation expectations. The committee is closely monitoring these risks." Market pricing shows that the probability of the Reserve Bank of New Zealand raising interest rates in July is now over 80%, and it is expected that the Official Cash Rate will reach 3% by the end of the year. Following Breman's remarks on Thursday, the yield on two-year government bonds rose 10 basis points to 3.58%, continuing the previous uptrend as traders raised their expectations of an interest rate hike. Breman stressed that policymakers will closely monitor any signs of medium-term inflation pressures building up. She said, "For example, inflation expectations, wage growth, and other indicators. If we see core inflation - not just total inflation, because we know total inflation will rise - and core inflation is also rising, then these could all be reasons to hike interest rates." Reserve Bank of New Zealand cautious about core inflation rebound Breman said that the Reserve Bank of New Zealand's focus on curbing inflation is unlikely to cause the economy to contract this year. She said, "We expect economic growth to weaken slightly in the short term, but I believe it is not appropriate to make overly definitive judgments on growth right now, as uncertainty is very high." "Based on fundamentals and the pre-conflict trend of the economy, we still expect some degree of growth in the New Zealand economy this year. If the conflict is resolved, I am quite confident we will see quite good growth data this year."