Fiscal policy is adding to uncertainty.
The most serious risk to medium-term inflation is the continuing strength of household spending, supported by a relentless housing market and rapid growth in mortgage lending.
The correction of these imbalances and associated inflation pressures will require a slowdown in housing, credit growth and domestic spending, ... We also expect a significantly lower exchange rate.
That's why we will keep making these warnings and if necessary take further action, ... can increase interest rates and we can do it in a way that really hurts.
The prospect of further tightening may only be ruled out once a noticeable moderation in housing and consumer spending is observed, ... Certainly, we see no prospect of an easing in the foreseeable future if inflation is to be kept within the 1% to 3% target range on average over the medium term.
We have seen ongoing momentum in domestic demand and persistently tight capacity constraints, ... We remain concerned that inflation pressures are not abating sufficiently to achieve our medium-term target.
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Further policy tightening may still prove necessary. Certainly, there remains no prospect of a cut in the foreseeable future.
The decline in the exchange rate will either be gradual, as domestic spending pressures ease, or it will be more abrupt as global investors reassess New Zealand as an investment destination.
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