RBNZ board member Professor Prasanna Gai says the Hormuz supply shock does not imply reflexive tightening, but has raised the neutral rate.
RBNZ board member Professor Prasanna Gai says the Hormuz supply shock does not imply reflexive tightening, but has raised the neutral rate. Pre-emptive hikes are only warranted when synchronisation is high.
Summary: RBNZ board member Gai said the model of the Strait of Hormuz shock does not imply a reflexive tightening bias, per remarks attributed to Gai Gai said pre-emptive tightening is only warranted when synchronisation is high and the relevant coordination mechanism is live, per the same remarks Gai said current conditions warrant the look-through approach that the conventional monetary policy framework has always recommended for supply shocks, per the remarks Gai acknowledged that the Hormuz supply shock has raised the neutral rate, per the remarks A board member of the Reserve Bank of New Zealand has pushed back against the notion that the disruption to oil and gas flows through the Strait of Hormuz automatically justifies a tightening of monetary policy, arguing instead that current conditions call for the conventional look-through approach central banks have long applied to supply-side shocks. Gai, speaking in the context of a modelled analysis of the Hormuz shock, said the situation carries no implication of a reflexive tightening bias. The remarks represent a notably measured response to a supply disruption that has prompted more hawkish signals from central bankers in other jurisdictions, including the United States, where Minneapolis Federal Reserve President Neel Kashkari has openly raised the possibility of rate hikes in response to the inflationary consequences of the Hormuz closure.
Gai drew a careful distinction around the conditions under which pre-emptive tightening would be appropriate, stating that such action is only warranted when synchronisation across economies is high and the relevant coordination mechanism is actively in place. The implication is that neither condition is currently met to a degree that would justify departing from the…