NZIER’s Shadow Board recommends the RBNZ hold the OCR steady

08 November 2016

New Zealand Institute of Economic Research (Inc)
Media release
For release 10am, Tuesday 8 November 2016


NZIER’s Monetary Policy Shadow Board recommends the Reserve Bank continues to keep the Official Cash Rate on hold this Thursday at 2 percent. While a few members called for a 25 basis point cut, most saw it appropriate to leave the OCR unchanged.

“Momentum in the New Zealand economy remains very strong, and while annual inflation remains well below the Reserve Bank’s mid-point target of 2 percent, it shows signs of picking up. This suggests further easing may not be warranted.” said Christina Leung, Senior Economist at NZIER.

“The Shadow Board continues to recommend the Reserve Bank keeps the OCR on hold at 2 percent this Thursday, but see risks as remaining skewed to the downside. However, given how well the Reserve Bank has signalled a 25 basis point OCR cut, we expect it will follow through on Thursday rather than risk putting upward pressure on the New Zealand dollar.”

The Shadow Board’s average recommended interest rate fell from 1.96 percent in September to 1.90 percent in November.

Figure 1 NZIER's Shadow Board recommends the Reserve Bank remains on hold but with an easing bias

Source: NZIER Monetary Policy Shadow Board

Figure 2 Individual participants’ recommended rate settings – 2 November 2016

Source: NZIER Monetary Policy Shadow Board

Table 1 Participant comments
Participant comments are always optional and can be limited to 60 words.

Scott Gardiner No comment.
Arthur Grimes There is little reason to change rates at this stage. The cost of living is stable, growth is robust, while inflation is starting to pick up overseas. In these circumstances, a wait and see attitude is warranted.
Michael Gordon The downside risks for inflation are fading. The rationale for a further cut now seems largely centred around keeping financial market expectations in check.
Kirk Hope No comment.
Viv Hall No comment.
Stephen Toplis Inflationary pressures are building. Further rate cuts are unnecessary at this juncture. Nonetheless, we still think the RBNZ will lower interest rates at its November meeting and leave the door open to a further cut thereafter.
Dave Taylor No comment.
Prasanna Gai No comment.
Zoe Wallis Growth is solid but, while there are signs of capacity pressure building in the NZ economy, price pressures remain subdued. Some additional monetary policy easing remains warranted to ensure inflation picks up convincingly from here.

About the NZIER Monetary Policy Shadow Board

NZIER’s Monetary Policy Shadow Board is independent of the Reserve Bank of New Zealand. Individuals’ views are their own, not those of their respective organisations. The next Shadow Board release will be Tuesday 7 February 2017, ahead of the RBNZ’s Monetary Policy Statement. Past releases are available from the NZIER website: www.nzier.org.nz.   

Shadow Board participants share out 100 points across possible interest rates to indicate what they believe is the most appropriate Official Cash Rate setting for the economy. Combined, these scores form a Shadow Board view ahead of each monetary policy decision.

Participants show where they think interest rates should be, not what they believe will happen.

The NZIER Monetary Policy Shadow Board aims to:

  • encourage informed debate on each interest rate decision
  • help inform how a Board structure might operate
  • explore how Board members could use probabilities to express uncertainty.

For further information, please contact:

Christina Leung, Senior Economist & Head of Membership Services

christina.leung@nzier.org.nz, 021 992 985