The Reserve Bank Explained | The Beehive Bunker

Buffer room: If inflation is at 2%, the RBNZ can cut interest rates significantly in a recession. At zero inflation, rates are already very low, limiting the ability to stimulate.
Wage flexibility: Mild inflation allows real wages to adjust without requiring nominal pay cuts, which workers resist strongly.
Deflation risk: Falling prices sound appealing, but they're devastating. If people expect prices to fall, they delay spending, crashing demand in a self-reinforcing spiral (Japan suffered this for decades).
Expectations anchor: When people believe inflation will stay around 2%, they set wages and prices accordingly, which makes the 2% target self-fulfilling.

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The Reserve Bank Explained

Reserve Bank of New Zealand, Te Pūtea Matua · Educational dashboard · Data current to June 2026