"While our financial system as a whole is resilient, some households and businesses will be challenged by the rising interest rate environment," Orr said while releasing the bank's twice yearly Financial Stability Report.
"It is important that financial institutions take a long-term view when supporting customers and allocating credit to the wider economy," Orr said.
Global supply chain disruptions, ongoing food and energy supply shocks, scarce labor resources, and the lagged effects of fiscal and monetary policy have all contributed to high inflation, Orr said.
Central banks have rapidly tightened monetary settings to ensure that inflation expectations remain anchored, but the extent to which economic activity will slow remains uncertain, said the governor.
Deputy Governor Christian Hawkesby said there are increasing downside risks to the global economic outlook, adding despite New Zealand's high levels of employment and a sound government fiscal position, "we are not immune to these risks."
Rising household debt servicing costs and declining household wealth will put pressure on domestic spending in the near term, Hawkesby said, expressing confidence in New Zealand's financial system supporting the economy.
He called on financial institutions to continue investing in their systems, governance and risk management to build their long-term resilience.
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