The quote that we enjoyed the most today, and one that should ring true for markets, was a Swedish saying that roughly translates to “keep ice in one’s belly”… which means ‘keep cool, calm and collected’. And yes, that means no rushed decisions or immediate knee-jerk reactions. It’s all guesswork at this stage with limited data and information, especially regarding the length and severity of the conflict itself. And to their credit, the RBNZ, Treasury, MBIE and other agencies are reaching out to banks and businesses to gather as much insight as they can.

It's not often we see such communication, and it reminds us of the Covid period. It’s serious. Given the information they have collated, the RBNZ expects higher inflation (obviously) and weaker growth (both offshore and onshore) from here. The ability of financial markets to digest the constantly evolving news flow, and for banks to tap into wholesale funding markets, is something we are all acutely aware of.

One thing is certain, the RBNZ will hold the OCR in two weeks’ time. That doesn’t sound like news, but tell that to wholesale rates implying nearly four rate hikes this year.

Breman’s comments threw water over these heated views, causing swap rates to fall immediately following her speech being published. The move lower was also assisted by the deescalation in the conflict overnight. The 48 hour deadline transformed into a 5 day negotiating window. Traders should be appeased for now. It’s more about price-setting behaviour from here. And there are big questions around the pass-through of inflation. We are wary that firms may be in a weaker position to pass costs on to households already hurt by ongoing cost-of-living pressures. All occurring at a time when the labour market is softening, with wage growth subdued at 2%. And this is different to the last Ukraine-Russia conflict led oil spike that came at a time of stronger global demand, and stronger domestic demand. For example, our unemployment rate was 3.2% (historically low) back then and is now 5.4% with even wider underutilisation rates. Savings were also higher back then, and don’t forget, we had a massive fiscal injection coming through. Not now. Our economy is much more fragile.

We’re unlikely to see the same rates of price pressure pass-through this time around. But history will be the judge. And to judge we need data. And to get data we need time. So let’s wait, watch, worry, and see.

The key here is that it will take time for the data to come in. In the interim, this is still a short-lived shock that the RBNZ will be vigilantly watching, but not yet hiking.

The war in the Middle East is wreaking havoc on global economies and threatening kiwi inflation and growth.

If the conflict is short-lived, any petrol-price effects will be short term and unlikely to impact the medium-term outlook – a tightening response to a sharp, short shock would be an over-reaction that would only hamper growth without helping inflation pressures right now. The last thing we need now is to fall back down another recession hole after barely scraping our way out of the last one.

The 8 April MPR is pivotal in (re)setting expectations for the rest of 2026. Today’s update was a welcome move in the interim. Wholesale rates have reacted, moving lower, but not by enough. Down from a peak of 3.68%, the 2-year swap rate was still at 3.55% at time of writing. That’s still way too high compared to cash of 2.25%. We believe the 3 rate hikes still priced in for 2026 are far too aggressive, and not reflective of an icy belly.

Much of the move in wholesale rates has been flow driven. That means banks are facing the same way, needing to pay swap rates, and are unable to find receivers (typically hedge funds) on the other side. There has been no other side at times. Hence, rates have gapped higher.