By Gareth Vaughan
Governor Anna Breman has implied the Reserve Bank's Monetary Policy Committee will increase the Official Cash Rate (OCR) in the run-up to November's election if members believe this is what is required.
"We are statutory independent. We are an independent central bank, like you point out, and we will do what is best for the New Zealand economy and to reach our inflation target," Breman told interest.co.nz in a new episode of the Of Interest podcast.
Breman was speaking on Friday, after the release of Statistics NZ's December quarter Consumers Price Index (CPI) showed annual inflation at 3.1%, above the Reserve Bank's 1% to 3% target range.
"We are carefully looking through all the data. It's clear that there are some items in there that typically are very volatile. They can change a lot between different quarters. But of course 3.1% is high and it means that inflation that's been hurting households for many years is still above where we want it to be, but the outlook is still favorable in terms of inflation going forward. So it's also important to stress that we will focus on getting inflation back in the target band and towards the midpoint of the target band," Breman said.
The Reserve Bank reviews the OCR for the first time this year on February 18.
In a note following the CPI release, BNZ Head of Research Stephen Toplis said financial markets had almost fully priced in a first OCR increase for the Reserve Bank's September 2 Monetary Policy Statement, with two increases priced by year's end. BNZ's economists have brought forward their expectations for a first OCR hike to September 2 from February 2027.
"One thing that needs to be taken into consideration is the General Election on November 7. The Reserve Bank is operationally independent so it can broadly do what it wants when it wants, but central banks are not keen to become embroiled in election campaigns if it can be avoided," said Toplis.
"In our opinion, this means the 28 October Monetary Policy Review would be far from optimal for a first rate hike. Moreover, it’s always easier to tell the full story with a complete Monetary Policy Statement when a hiking cycle, or cutting, begins."
"The market is already a long way toward pricing it so following through in September should not cause too much grief for the election," Toplis said.
Breman said she doesn't comment directly on market pricing. The OCR is currently at 2.25%, having been reduced from 5.50% since July 2024.
In the podcast audio Breman speaks further about inflation including the challenges facing households, whether she expects help from government with the inflation fight, limits to Reserve Bank monetary policy, her recent support of US Federal Reserve Chairman Jerome Powell and the responses from Foreign Minister Winston Peters and Finance Minister Nicola Willis, risks around the Fed becoming less independent when President Donald Trump appoints a new Chairman, what climate change means for the Reserve Bank, her thoughts on a potential central bank digital currency, and more.
*You can find all episodes of the Of Interest podcast here.
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.