Reserve Bank Governor Anna Breman says near-term inflation will be higher than expected but warns the bank's own 4.2% forecast for the July quarter is built on assumptions that are already shifting.
Peace talks between the US and Iran are underway in Pakistan, but on the other side of the world, New Zealand was operating in an environment of economic uncertainty.
It is in these circumstances that the Reserve Bank's monetary policy committee held the official cash rate (OCR) at 2.25% on Wednesday - on the same day an unexpected and tenuous two-week ceasefire was reached in the Middle East.
Breman told Q+A today that while inflation is now forecast to rise in the short term, whether these changes are "embedded in the economy" remains to be seen.
Reserve Bank says the global picture has changed markedly since the previous update in February. (Source: 1News)
The bank's 4.2% forecast was based on oil futures markets, which at the time expected prices to stay elevated but fall below US$100 a barrel by the end of June.
But Breman said there was "so much uncertainty" around the outlook, with new information arriving daily — including shifting news about a ceasefire in the days since the bank's most recent monetary policy decision.
"Any forecast you put out right now is highly uncertain," she said. "Already now we've seen the oil price coming back a little bit, then it's been going up. What we're saying is that this is based on some assumptions, but it's highly uncertain.
"We do know that near-term inflation will be higher than what we expected at our last meeting in February."
The Reserve Bank is charged with keeping medium-term inflation between 1% and 3%.
MPC vote transparency considered
Breman started her tenure as governor in December 2025 and committed the Reserve Bank to greater transparency in its monetary policy decision making.
Holding pattern is in line with what economists and the financial markets expected. (Source: 1News)
She arrived last year in the wake of leadership turmoil, with former governor Adrian Orr, chairperson Neil Quigley and acting governor Christian Hawkesby all leaving the bank.
Breman said she has not spoken to Orr about monetary policy.
Unlike at Sweden's Riksbank, where Breman previously served as first deputy governor, the six members of the Reserve Bank's monetary policy committee, which makes OCR decisions, keep their individual votes secret.
The new governor of New Zealand's bank said this policy was currently under discussion, and the Reserve Bank was "almost ready" to announce any changes.
Cash consultation and legal questions
The Reserve Bank was also currently consulting on whether to make it mandatory for banks to maintain cash services.
On the ongoing consultation on cash access in regional communities, Breman said more than 4000 people had submitted feedback and the response had been largely positive.
"Cash is important to people. Cash is important for people with disabilities that might not be able to use all the modern, digital solutions. It's important for crisis preparedness."
But pressed on whether the bank had the statutory authority to mandate banks to maintain cash services, she declined to give a definitive answer.
She said the bank would release more information on the legal basis "within a couple of weeks" and said its preferred approach was a voluntary arrangement with banks.
For the full interview, watch the video above
Q+A with Jack Tame is made with the support of New Zealand On Air
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