By Lucy Craymer and Renju Jose
WELLINGTON, April 23 (Reuters) - New Zealand's economic recovery has been delayed but not derailed, Finance Minister Nicola Willis said on Thursday after the Iran conflict lifted fuel costs and dented business and consumer sentiment.
Willis said Treasury's best-case scenario has inflation at 3.9% in the current fiscal year ending June 30 if oil averages $110 a barrel.
A worst-case path of oil at $180 could push inflation to 7.4%, though she called that highly unlikely.
Annual inflation rate is currently at 3.1%, above the central bank's 1%–3% target band, increasing the likelihood of further interest-rate hikes later this year.
"The (best-case) scenario looks the most likely. If that does remain the case, it means we face some significant short-term challenges and heightened medium-to-long-term risks," Willis told reporters while presenting an economic update.
"What we are presenting to you is a picture of an economy that has been disrupted but not derailed and will continue to grow this year."
New Zealand's economy returned to growth in the second half of last year but growth remains weak.
Credit rating agency Moody's downgraded New Zealand's rating outlook to "negative" from "stable" on Wednesday, citing increased risks to its fiscal trajectory amid global uncertainties but affirmed the nation's top-tier 'Aaa' rating.
The New Zealand government will release updated forecasts for GDP, inflation and unemployment when it presents its budget on May 28.
(Reporting by Lucy Craymer in Wellington and Renju Jose in Sydney; Editing by Jacqueline Wong and Edwina Gibbs)
