RBNZ to base monetary policy on future inflation outlook
Reserve Bank of New Zealand Governor Anna Breman stated that monetary policy decisions are based on future inflation forecasts, not current data. She emphasized that the time lag for the Official Cash Rate to influence the economy necessitates a forward-looking approach.
Future forecasts guide policy decisions
Governor Breman emphasized that monetary policy decisions are inherently forward-looking, not reactive to current inflation, due to the significant time it takes for the Official Cash Rate to influence the economy and price levels.
She clarified that while current inflation data is crucial for shaping forecasts and analyzing underlying drivers, the RBNZ's mandate explicitly requires a focus on where inflation is projected to head.
This forward-looking approach is also vital for financial markets, enabling them to anticipate the Monetary Policy Committee's (MPC) reactions to new information about inflationary pressures.
Breman explained that this allows financial conditions to adjust proactively, supporting the RBNZ's mandate even before the MPC formally meets to consider new data and adjust policy settings.
Inflation target in sight, future challenges persist
Governor Breman acknowledged the bumpy path to 2 percent inflation, but expressed confidence that inflation is expected to return to the RBNZ's target range in the first quarter of this year, reaching the 2 percent midpoint over the next 12 months.
Despite this positive outlook for 2026, she cautioned against complacency, citing a volatile global environment.
Breman highlighted artificial intelligence growth and geopolitical shifts as factors that promise 'more curve balls' and indicate an unlikely smooth transition.
She stressed that policy plans will adjust with new information, without implying a pre-set course.