{"id":370102,"date":"2026-04-08T20:59:20","date_gmt":"2026-04-08T20:59:20","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/370102\/"},"modified":"2026-04-08T20:59:20","modified_gmt":"2026-04-08T20:59:20","slug":"stagflation-a-bleak-possibility-that-could-put-the-reserve-bank-in-a-tough-position-jenee-tibshraeny","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/370102\/","title":{"rendered":"Stagflation a bleak possibility that could put the Reserve Bank in a tough position – Jen\u00e9e Tibshraeny"},"content":{"rendered":"

On Wednesday, its Monetary Policy Committee kept the Official Cash Rate (OCR) in stimulatory territory at 2.25%<\/a>, as expected.<\/p>\n

Governor Anna Breman reiterated what she said in a speech on March 24<\/a> \u2013 that the Reserve Bank\u2019s job was to ensure the annual inflation rate was between 1 and 3% in the \u201cmedium term\u201d.<\/p>\n

The Reserve Bank forecasts the annual rate fell to 3% in the March quarter (from 3.1% in the December quarter) and will rise to 4.2% in the June quarter. The June quarter estimate was put together before the ceasefire was announced, so could end up being lower.<\/p>\n

Looking beyond this point, if high oil prices prompt businesses to lift prices and employees to seek higher wages, higher inflation could become embedded. <\/p>\n

This is what could push the committee to lift the OCR more quickly than would otherwise have been the case. Or in the Reserve Bank\u2019s words, prompt \u201cdecisive and timely increases\u201d in the OCR.<\/p>\n

Pre-conflict, the committee believed the economic recovery was such, it could start lifting the OCR towards the end of the year.<\/p>\n

While the Reserve Bank will only update its OCR track on May 27, traders in financial markets have fully priced in an OCR hike for September. <\/p>\n

They believe the committee was a little hawkish, or slightly more worried about inflation, than expected. <\/p>\n

Hence two-year swap rates (wholesale interest rates, which influence fixed mortgage rates) rose by about seven basis points to 3.38% on the back of the OCR review, getting them back to the level they were at before news of a ceasefire deal was announced.<\/p>\n

The movement is unlikely to prompt banks to move fixed mortgage and term deposit rates.<\/p>\n

Swap rates have been volatile in recent months due to some illiquidity and changes in the inflation\/interest rate outlooks of traders in financial markets.<\/p>\n

Swap rate rises have seen mortgage rates push higher since late-2025, despite the OCR being cut and kept at a trough of 2.25%.<\/p>\n

Before the conflict broke out, this concerned some observers, who believed mortgage rates needed to stay lower for longer to really cement the economic recovery \u2013 encourage borrowers to make the most of having higher disposable incomes by getting out and spending.<\/p>\n

However, now that high oil prices are putting upward pressure on inflation, those higher mortgage rates may conveniently be doing some of the work for the Reserve Bank \u2013 curtailing economic demand and therefore inflation a little. <\/p>\n

Speaking to Newstalk ZB, Breman suggested the low OCR had nearly finished filtering through the economy, as the average interest rate paid on the country\u2019s stock of mortgage debt wouldn\u2019t fall much more. <\/p>\n

The average borrower with a mortgage paid 4.97% interest in January, according to the latest Reserve Bank data. This was down from a peak of 6.39% in October 2024. <\/p>\n

The bleak part of the situation is that the economy has had its stimulus, and still isn\u2019t firing. <\/p>\n

Should the committee decide inflation has become embedded, and start hiking the OCR aggressively, households and businesses will struggle.<\/p>\n

The Government is hesitant to provide widespread support to ease the pain of inflation in the way the Labour-led Government did in the aftermath of the pandemic. It doesn\u2019t want to borrow more than it needs to or exacerbate inflation. <\/p>\n

Even if the ceasefire results in an end to the war, oil prices will likely remain high for some time.<\/p>\n

It will take a while for oil and gas infrastructure damaged by fighting to be repaired and new supply chains to bed in. A risk premium will also be included in the oil price. <\/p>\n

While news of a two-week ceasefire saw the price of Brent crude oil fall from around US$110 a barrel to US$94, it is still well above the US$68 pre-conflict price.<\/p>\n

There is a great deal of uncertainty over the way things will pan out.<\/p>\n

One thing is certain – the longer it takes for conflict in the Middle East to be resolved, the less positive the best-case scenario starts to look.<\/p>\n

Jen\u00e9e Tibshraeny is the Herald\u2019s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.<\/p>\n

Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter<\/a> \u2013 your essential weekly round-up of all the business news you need.<\/p>\n","protected":false},"excerpt":{"rendered":"On Wednesday, its Monetary Policy Committee kept the Official Cash Rate (OCR) in stimulatory territory at 2.25%, as…\n","protected":false},"author":2,"featured_media":370103,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[193093,665,1643,53688,138,3467,124,34088,219,38890,2883,78,25491,16609,152380,193685,111,139,69,8998,59676,9214,10665,117865,55077,9640,1361,223,165,152381,13983,157746,1680],"class_list":{"0":"post-370102","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-agreeing","9":"tag-around","10":"tag-bank","11":"tag-bleak","12":"tag-business","13":"tag-ceasefire","14":"tag-could","15":"tag-delivered","16":"tag-economy","17":"tag-glimmer","18":"tag-hope","19":"tag-in","20":"tag-intent","21":"tag-iran","22":"tag-jene","23":"tag-negotiating","24":"tag-new-zealand","25":"tag-newzealand","26":"tag-nz","27":"tag-position","28":"tag-possibility","29":"tag-put","30":"tag-reserve","31":"tag-signalling","32":"tag-stagflation","33":"tag-table","34":"tag-that","35":"tag-the","36":"tag-their","37":"tag-tibshraeny","38":"tag-tough","39":"tag-twoweek","40":"tag-wednesday"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/370102","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=370102"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/370102\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/370103"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=370102"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=370102"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=370102"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}