New Zealand central bank Governor Adrian Orr said a mild recession would be the “bare minimum” before policymakers could contemplate interest-rate cuts.

“It’s the bare minimum we need to see because without doubt demand has been well outstripping the pace of the supply capacity of the New Zealand economy,” Orr said in an interview with Bloomberg Television Thursday in Wellington. “We need to see subdued consumer spending, business investment and government constraints on spending, these are a critical part of the inflation process.”

The Reserve Bank yesterday held its Official Cash Rate at 5.5% but raised its forward track slightly, indicating the risk of another rate hike. The bank projects the economy will contract 0.3% in the third quarter and 0.1% in the fourth, which would mark the second recession in little more than a year.

Orr said he’s confident inflation will return to the RBNZ’s 1-3% target band over the medium term if rates are held at their current level for long enough.

“We don’t feel a rush to be changing rates anytime soon,” he said.