Trump’s policies may pose medium-term risk to inflation, New Zealand central bank official says

By Lucy Craymer and Renju Jose

WELLINGTON (Reuters) – A top New Zealand central banker said on Thursday that U.S. President-elect Donald Trump’s economic policies could pose a medium-term risk to inflation though the bank had not conducted any formal modelling on potential impacts.

Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway said Trump’s policy agenda could result in higher prices and so there could be “more inflation volatility going forward”.

“We can’t foresee what President-elect Trump, I mean he talks a lot, but what is going to actually be put into place would be remiss of us to be sort of reacting. We’d be boxing at shadows currently,” Conway told a parliamentary committee.

Trump has pledged a 25% tariff on all products from Mexico and Canada, and an additional 10% tariff on goods from China – the United States’ three largest trading partners – on his first day in office in January.

The tariffs could lead to a global trade war and may impact the New Zealand economy as the country relies heavily on trade, which accounts for 54% of its gross domestic product.

RBNZ Deputy Governor Christian Hawkesby said the central bank will test scenarios “that could play out in more extreme cases” and check how resilient the economy would be when exposed to severe stress.

The central bank on Wednesday cut rates for a third time in four months and flagged more substantial easing, including a likely half percentage point reduction in February, as the economy slows and inflation moderated to around its target.

Economic growth is expected to recover during 2025, the RBNZ forecast, as lower interest rates are expected to revive house prices, and encourage investment and other spending.

Though house prices are “notoriously difficult” to predict, the RBNZ expects prices to rise 6.8% next year due to the recent cuts in interest rates, Conway said.

“I should say we’re not forecasting a boom in house prices … but we do see a little bit more life coming into the housing market than what we’ve seen over recent years.”