By Lucy Craymer and Harshita Swaminathan
(Reuters) – The Reserve Bank of New Zealand said on Monday its annual stress test of the banking sector showed banks were “well positioned” to overcome stagflation .
RBNZ Deputy Governor Christian Hawksby said that while banks’ capital buffers would take a hit in a stagflation scenario, where high inflation accompanies negative economic growth, they will remain well above the regulatory minimum.
Hawksby said this was partly due to capital accumulation since the 2008 global financial crisis.
New inflation New Zealand’s interest rate is near a three-year high of 7.2%, and the central bank has been aggressively raising the cash rate to try to rein in it.
Gross domestic product rose 1.7% in the June quarter, but rising cash rates raise the risk of a contraction.
The Central Bank will publish two annual financial stability reports on November 2.