The Reserve Bank has today left the Official Cash Rate on hold at 2.25%.

The RBNZ warned that “in the near term, inflation is expected to increase and the economic recovery to weaken.”

“If medium-term inflation expectations increase, then inflation is likely to become more persistent. However, weak demand and spare productive capacity in the economy should constrain the degree to which higher costs can be passed on.”

“The Middle East conflict has disrupted global supply chains, leading to significantly higher prices for oil and refined petroleum products,” the monetary policy committee said.

EARLIER

The Reserve Bank releases its April Monetary Policy Review and OCR decision at 2pm and will follow up with a press conference at 3pm.

Reserve Bank Governor Anna Breman and her team face the unenviable challenge of trying to make sense of the economic fallout from the Iran conflict and the implications of the ceasefire.

More inflation and lower growth seem to be the general expectation of most economists.

But what does that mean for monetary policy?

Despite markets pricing in an outside chance that the OCR is hiked from the current level of 2.25%, bank economists unanimously expect no change.

They expect the Reserve Bank (RBNZ) to look through the short-term supply shock and keep the OCR on hold until the extent of the inflationary impact becomes clear.

BNZ economists remain the most hawkish, picking a rate rise at the September review (although this is a position they held before the Iran conflict).

ANZ and ASB economists still see the RBNZ holding on until December.

Westpac forecasts one hike “by the end of the year”.

The key takeaway from Breman’s speech on March 24 was that the RBNZ was likely to take a cautious approach in responding to Middle East ructions, said ASB senior economist Jane Turner.

“The global economy has been upended by war in the Middle East, which has seen fuel prices rocket and transport and supply chains upended,” Turner said.

“The New Zealand economy has been significantly impacted, and uncertainty is elevated.”

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.