RBNZ’s Conway Highlights Persistent Inflation Risks, Signals Potential for Further Tightening
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- RBNZ sees persistent inflation risks, Middle East conflict cited.
- Inflation peak seen at 3.9%; RBNZ signals potential rate hikes.
- NZD/USD rallies to 0.5780; RBNZ aims for “calibrated drift”.
Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway stated on Tuesday that inflation may not decelerate as rapidly as the central bank forecasts, pointing to upside risks for the September quarter forecast. He attributed these complications partly to the Middle East conflict, which continues to influence cost pressures despite some earlier easing in oil prices. Conway indicated that a further reduction in stimulus is likely necessary to manage these persistent price impacts, suggesting the potential for additional interest rate increases. While affirming that inflation is expected to return to the 2% target over the medium term and that long-term inflation expectations remain anchored, he emphasized the importance of firm responses to cost shocks. He also noted that the RBNZ is not currently discussing a shift to a tightened policy stance, balancing the hawkish outlook with a degree of policy stability.
RBNZ Chief Economist Paul Conway clarified the central bank's approach, describing it as a **"calibrated drift back to neutral"** rather than a full tightening campaign, even while flagging further hikes. Conway noted that New Zealand's inflation may not slow as quickly as the RBNZ forecasts, with a projected peak of **3.9%**, well above the target band. He also acknowledged that weak potential growth presents a structural challenge to returning inflation to the 2% target. Following these remarks, the **NZD/USD pair rallied to the 0.5780 area**, as markets began pricing in further rate increases.