Adrian Orr says the biggest risks for the domestic economy come from offshore, especially China. Photo: RNZ / Dom Thomas
Reserve Bank governor Adrian Orr says global central banks will have to hang onto higher interest rates for longer than financial markets have been expecting.
Orr was quizzed by business leaders at a Business Canterbury lunch on Friday - the former Employers Chamber of Commerce.
During questioning, he described the state of the New Zealand economy as "sound and stable", and warned the biggest risks are offshore - notably the slowdown in China.
But Orr said in the near term, the level of interest rates would be a challenge.
"Central banks are going to hang tough for longer than markets have been pricing for quite some time," he said.
Orr referred to the "surprisingly, slightly warm" inflation numbers from the United States last week.
"So financial markets ... they think 'OK, is this it, is this the peak? And so my game is to pick when's the next cut, when's the first cut,'" he said.
"When you've got a forward interest rate curve that was declining quite steeply towards the end of last year, it means asset prices are really pumped up," Orr said.
The Reserve Bank's indicative forecasts from last week pointed to no rate cuts until mid-2025.
On Wednesday, the central bank held the official cash rate at 5.5 percent, but repeated concerns about stubborn inflation pressures, and dashed hopes of early rate cuts.
It said headline inflation remained above the 1 to 3 percent target band, limiting the Monetary Policy Committee's ability to tolerate "upside inflation surprises".
However, the statement was described by economists as less aggressive than the November monetary policy statement.
