The Reserve Bank of New Zealand is expected to keep rates unchanged this week; hawkish remarks amid stagflation risks may briefly push up the New Zealand dollar.

(1) The market widely expects that the Reserve Bank of New Zealand will keep the Official Cash Rate (OCR) unchanged at 2.25% on Wednesday. A survey shows that 28 out of 29 economists hold this expectation; however, due to widespread inflation concerns triggered by the Iran war, just over half of the economists anticipate at least one rate hike before the end of the year. (2) New Zealand is entirely dependent on imported fuel (since the closure of its last refinery in 2022), making it highly susceptible to oil price fluctuations. The CPI remained steady at 3.1% in the first quarter, already above the central bank's target range of 1%-3%. The war has further intensified inflationary pressures, bringing monetary policy tightening onto the agenda. However, the economy has yet to recover: GDP growth in the fourth quarter of last year was only 1.3% year-on-year, and although the unemployment rate edged down to 5.3%, it remains near a 10-year high. (3) New Zealand is facing the reality of stagflation, and relying solely on monetary policy is not a panacea—targeted fiscal intervention is also required. If the Reserve Bank of New Zealand delivers a hawkish statement on Wednesday, the New Zealand dollar against the US dollar will likely approach the May high of 0.5991 in the short term, but strong resistance above and the overall weak macroeconomic environment will limit further gains.