Westpac said Tuesday the drag from higher inflation on household spending and activity may allow the Reserve Bank of Australia to remain on hold with a hawkish bias if Brent oil prices reach US$150 per barrel.

Under the same scenario, persistently higher inflation in New Zealand, combined with a low starting point for interest rates, could lead the Reserve Bank of New Zealand (RBNZ) to raise rates by a further 50 basis points in 2027 to contain core inflationary pressures, the bank said.

If oil prices were to rise to only $100 per barrel and remain there, model estimates suggest the balance of risks would tilt toward the RBNZ raising rates by a further 25 basis points in 2027 relative to its 125 basis point baseline, with rates about 25 basis points higher over the forecast period, Westpac said.

For Australia, where the inflation pass-through is smaller, the balance of risks would be for rates to settle about 25 basis points higher over the longer term, the report added.

If only the Iranian oil supply is disrupted, Australian consumer price inflation (CPI) would rise by about 0.7 percentage points, while the near-term impact on real gross domestic product (GDP) would be marginal, with growth in the fourth quarter of the year less than 0.1 percentage point lower, the bank said.

A one-month disruption to supply through the Strait of Hormuz would lift Australian CPI by about one percentage point and lower GDP growth by around 0.2 percentage points, while a three-month disruption could see CPI temporarily spike by around 1.5 percentage points and GDP about 0.5 percentage points lower by the end of the year, the report added.

In New Zealand, the same shock would transmit more forcefully as higher oil prices represent a negative terms-of-trade and income shock, Westpac said. Under an Iranian supply scenario, CPI would rise by about one percentage point, and GDP would be about 0.4 percentage points lower.

However, a one-month Strait of Hormuz closure would lift New Zealand CPI by about 1.6 percentage points and lower GDP by around 0.5 percentage points, while a three-month disruption would raise CPI by about three percentage points and reduce GDP by around 0.7 percentage points, the report added.