RBNZ says prior cuts still support growth, sees upside if conflict eases

RBNZ says growth hinges on conflict outcome as prior cuts still support economySummary:Breman says rate cuts still providing economic stimulus

Growth outlook tied to Middle East conflict resolution

Swift ceasefire could support stronger growth this year

Earlier data showed improving momentum pre-conflict

March stable, April likely softer

Supply disruptions key uncertainty alongside oil prices

RBNZ held rates at 2.25% for second meeting

Central bank assessing global fallout before next move

Policy remains data-dependent with inflation risks elevatedReserve Bank of New Zealand Governor Anna Breman reiterated that the outlook for the domestic economy remains closely tied to developments in the Middle East, signalling that a faster resolution to the conflict could unlock stronger growth this year.Speaking following the central bank’s decision to hold the cash rate at 2.25%, Breman said earlier rate cuts are still working their way through the economy, providing a degree of ongoing stimulus. That easing backdrop, combined with improving underlying momentum seen earlier in the year, leaves the economy well placed to strengthen—provided external risks begin to fade.Her comments build on earlier guidance that high-frequency indicators pointed to a pickup in activity through January and February, before geopolitical tensions began to weigh on sentiment into March and are expected to soften conditions further in April.However, Breman emphasised that the outlook remains highly uncertain, with the duration and severity of the Middle East conflict representing the key swing factor. She noted that beyond oil prices, the broader impact of supply disruptions is likely to shape both growth and inflation dynamics in the near term.A swift de-escalation would likely ease pressure on fuel costs and improve business confidence, supporting a rebound in activity. Conversely, a prolonged conflict risks extending supply chain disruptions and keeping inflation elevated, complicating the recovery.The RBNZ’s current stance reflects this balance. Policymakers opted to hold rates for a second consecutive meeting, allowing more time to assess the evolving global backdrop, while maintaining a clear bias to respond if inflation pressures intensify.Taken together, the central bank appears to be navigating a narrow path between supporting a fragile recovery and guarding against renewed inflation risks, with policy flexibility preserved as geopolitical uncertainty continues to dominate the outlook.
This article was written by Eamonn Sheridan at investinglive.com.

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