"We are likely to see higher headline inflation over the near term, and somewhat weaker growth momentum," Governor Breman says.
In the speech, Global shockwaves to Kiwi shores: The impact of the Iran conflict on New Zealand, Governor Breman acknowledged the uncertainty and hardship that many households and firms are experiencing at this difficult time.
"There is a risk that global financial stability risks could emerge and affect the cost and availability of funding for New Zealand banks. However, recent stress testing suggests that banks are resilient with strong capital and liquidity buffers, and are well-placed to weather severe geopolitical shocks."
Governor Breman also set out the framework that the Monetary Policy Committee (MPC) will use to assess the appropriate monetary policy response to the effects of the conflict in the Middle East on New Zealand's economy.
"Getting this judgement right is key to avoiding reacting too early to near-term inflation pressures that monetary policy can do little about - or reacting too late if above-target inflation becomes embedded in the economy," Governor Breman says.
"Most importantly, monetary policy can and should ensure that a temporary inflation spike does not turn into enduring inflationary pressures. The Committee will be vigilant to this risk.
"The best contribution that monetary policy can make to the wellbeing of New Zealanders is to deliver low and stable inflation over the medium term."
More information
April Monetary Policy Review and OCR
