New Zealand’s central bank chief warned of a possible inflation shock in the U.S. and much higher interest rates should Donald Trump roll out a program of protectionist policies.
According to Graeme Wheeler, governor of the Reserve Bank of New Zealand, the recent comments from the Trump administration calling for higher tariffs on imports from China and Mexico would only increase prices in the U.S. Also, the U.S. Federal Reserve would be forced to clamp down through tighter policy.
Wheeler added that inflation is expected to return to the midpoint of the central bank's 1-3 percent target band "gradually."
Earlier, New Zealand's central bank held its benchmark interest rates at a record low of 1.75 percent and said monetary policy would remain accommodative "for a considerable period". "Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly,"RBNZ Governor Graeme Wheeler said in a statement.