Silk is on the dovish side of a knife-edge split, speaking into a labour market that makes the case for holding look stronger by the week. the RBNZ will be issuing no speech notes for this.
Summary:
- Silk addresses the Craigs Investment Partners Women's Wealth Breakfast in Tauranga, drawing solely from May MPS slides with no new policy guidance
- The May MPS saw an unprecedented 3-3 OCR split; Breman, Silk and Conway voted to hold at 2.25%, while Hansen, Gourley and Gai backed an immediate 25bp hike
- The RBNZ projects inflation hitting 4.3% on Iran war energy shock, well above the 1-3% target band, with at least two further hikes projected by year-end
- Unemployment sits at 5.3%, just off a decade high, with the RBNZ forecasting it will linger at 5.4% for at least a year
- The single inflation mandate, introduced by the National-led government in 2023, means employment conditions cannot formally constrain the hiking path
- Labour has flagged reinstatement of the dual mandate if it wins November's election
RBNZ Assistant Governor Karen Silk addresses a business breakfast in Tauranga today, presenting insights from May's Monetary Policy Statement in an appearance the central bank has confirmed contains no new guidance. The timing, however, does the talking the content cannot.
The May MPS produced the most divided monetary policy decision in the RBNZ's history: a 3-3 split on whether to hike the OCR immediately, resolved only by Governor Anna Breman's casting vote in favour of holding at 2.25%. Silk voted with the governor. Three members, Hansen, Gourley and Gai, wanted an immediate move to 2.50%. The RBNZ still projects a minimum of two quarter-point hikes before year-end.
The case for tightening is straightforward on the inflation side. The energy shock flowing from the Iran conflict is expected to push the consumer price index to 4.3%, well outside the 1-3% target band. The case against is equally legible in the labour data: unemployment sat at 5.3% in the first quarter, just off a decade high, and the RBNZ's own forecasts see it remaining at 5.4% for at least a year, a level not seen before late 2024 in nearly a decade.
The tension is being absorbed entirely by the single mandate framework introduced by the National-led government in 2023, which removed the obligation to support full employment. Silk has noted the bank retains secondary objectives around output and employment volatility, but has been clear that inflation remains the primary focus.
With a general election due in November, the mandate question is acquiring political weight. Labour has indicated it would reinstate the dual mandate in government, a prospect that introduces a medium-term structural variable into any forward rate view.
RBNZ next meet July 8
