The Reserve Bank of New Zealand's (RBNZ) monetary policy committee decided to keep the official cash rate steady at 2.25%, according to a Wednesday statement.
The Middle East conflict is increasing near-term inflation and weakening economic activity. RBNZ said inflation is expected to peak at 4.3% in the September quarter and to return to the 2% target mid-point in mid-2027. Annual consumers price inflation was 3.1% in the March quarter.
Core inflation, wage growth, and medium- to long-term inflation expectations remain consistent with inflation returning to the 2% target mid-point over the medium term. The outlook for medium-term inflation pressures is uncertain, and they could remain elevated if households and businesses expect higher costs in future. However, weak demand and elevated unemployment will dampen medium-term inflation pressures.
Business contacts and surveys in New Zealand indicate weaker confidence and spending. Consumer confidence has fallen sharply, and the housing market remains weak.
The central bank said the policy rate will most likely need to increase sooner, and the pace of the increases will depend on the relative influence of persistent wage- and price-setting behavior versus weaker economic activity on medium-term inflation pressures.