Reserve Bank Governor Anna Breman says her casting Monetary Policy Committee vote was based on an assessment of the upside risk to inflation and outlook for economic growth.<\/p>\n
\u201cI made an assessment on how I see these two forces,\u201d Breman told reporters at a press conference on Wednesday.<\/p>\n
Her comments follow the May Monetary Policy Statement (MPS) where the Official Cash Rate (OCR) was held at 2.25%<\/a>.<\/p>\n It’s the first time the RBNZ has made the votes of Monetary Policy Committee members public<\/a> when consensus hasn’t been reached between them. This shows a vote split 3-3 between the three senior RBNZ staff on the committee, who voted for a hold, and the three external members, who voted for a 25 basis points increase.\u00a0Breman, as chairperson, had the casting vote which meant the OCR was held.<\/p>\n Speaking at the post-MPS<\/a> press conference, Breman said: \u201cMembers in favour of raising the OCR were more concerned with the risk of cost pressures leading to stronger second round effects on inflation.\u201d<\/p>\n On the other hand, members in favour of the hold also saw inflationary pressures, Breman said, but emphasised low core inflation, which strips out volatile goods and services such as\u00a0food and energy prices, subdued wage growth and well anchored medium and long-term inflation expectations.<\/p>\n \u201cThese members also put more weight on weak demand and tighter financial conditions as likely to dampen second round price increases.\u201d<\/p>\n Asked what made her certain that holding the OCR was the right move, Breman said: \u201cWe all recognise that we have an uncertain global environment currently \u2026 I looked at the upside risk to inflation and our main forecast. I also looked at growth and I made an assessment on how I see these two forces.\u201d<\/p>\n On the attributed votes, Breman said the committee welcomed the increased transparency.<\/p>\n Following the OCR announcement, Finance Minister Nicola Willis said the split sent “a really clear message that this is an accountable, transparent Monetary Policy Committee that is judging what are very finely balanced issues in the current global economic environment.\u201d<\/p>\n “That it is judging those factors with all of the data it has to hand, and that even with all of that data, these things are finely balanced, and views may differ.”<\/p>\n RBNZ expects to see rising mortgage rates over the coming months<\/p>\n In its MPS, the committee noted New Zealand financial conditions had tightened through higher wholesale interest rates. These were passing through to higher fixed-term mortgage rates and term deposit rates (but to a lesser extent).<\/p>\n \u201cThe average interest rate on outstanding mortgages declined to 4.9% in March but is expected to increase to 5.3% over the next 12 months,\u201d the MPS said.<\/p>\n At the press conference, RBNZ Assistant Governor Karen Silk said: \u201cGlobally, most central banks are taking a bit more of a wait and see approach. Many economists share that view. At this point in time, markets are looking ahead from that, and looking at future inflationary pressures, and have therefore priced that in already.\u201d<\/p>\n Silk said this fed into near-term wholesale rates and wholesale rates were a key driver to what happens with retail rates.<\/p>\n \u201cWe\u2019ve seen mortgage rates increase off the back of that rise in wholesale rates and that\u2019s been informed by what market expectations are.\u201d<\/p>\n Breman said the RBNZ\u2019s forecast suggests average mortgage rates would rise.<\/p>\n \u201cNow that we’ve seen wholesale interest rates and mortgage rates starting to increase, that will also flow through to the average in the stock, so we do expect to see that over coming months.\u201d<\/p>\n Unemployment seen holding above 5%<\/p>\n The May MPS projects the unemployment rate<\/a>\u00a0to be over 5% for the rest of the year and 2027. As of the March quarter, the jobless rate was 5.3%.<\/p>\n Breman said NZ had experienced three years of weak economic growth, but there were some early stages of recovery at the end of last year and at the beginning of 2026.<\/p>\n \u201cThis year we actually saw employment growth as well, and now with the global events, this is again hurting and slowing down the economy. So it is a really tough situation, in particular for younger people who have a weaker connection to the labour market.\u201d<\/p>\n The RBNZ projects inflation to peak in the September quarter at 4.3% and to return to its 2% target midpoint in mid-2027. The RBNZ still expects annual inflation to reach 4.2% in the June quarter, unchanged from the April monetary policy review<\/a>.<\/p>\n The central bank\u2019s target inflation range is 1% to 3%, with a midpoint of 2%.<\/p>\n