Shadow Board says hold interest rates low

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NZ Institute of Economic Research (Inc)
Media release, 30 January 2013

Embargoed until 1am Wednesday 30 January 2013

“The NZIER Shadow Board says holding the official cash rate at 2.50 percent is the right call,” said Dr Kirdan Lees, Head of Public Good Research at NZIER.”

“Inflation is at historical lows, tempered by a high exchange rate and weak household demand that means firms are struggling to pass on cost increases. The economic recovery has little momentum and unemployment remains high. In most areas of the economy, there is ample spare capacity.”

“But the Auckland housing market is running hot and the Canterbury rebuild means we can expect rising inflation in some pockets of the economy.”

“On balance, the Shadow Board thinks rates should be held at low levels. Lowering interest rates further has more support than raising interest rates at this point.”

Figure 1 shows the Shadow Board view, with individual participants’ views shown in Figure 2. For the first time, participants provide optional comments.

Figure 1 NZIER Shadow Board continues to favour an OCR of 2.5%

Source: NZIER Shadow Board

Figure 2 Individual responses - 30 January 2013

Source: NZIER Shadow Board

Participant comments January 2013

Participant comments are always optional and are limited to 60 words.

Cameron Bagrie No comment
Luke Blunt No comment
Shamubee Eaqub Inflation is low and the recovery is only just beginning. It is right to keep interest rates low for an extended period.
Viv Hall I recommend no change in the OCR. My small probability for a 25bp cut acknowledges on-going global macroeconomic risks. Monetary policy has been particularly accommodating. I see future OCR movements as upwards, but currently with low probability. Timing and speed of the increases will be influenced by trend increases in non-tradables inflation and household credit, and medium term inflation expectations. 
Phil O'Reilly Projections are for low inflationary pressures over the medium term which suggests there is room for a cut in the OCR.  On the other hand there are some pressures on the housing sector and also potential cost pressures associated with the rebuild of Christchurch e.g. increased insurance costs.
Dominick Stephens Low inflation and the high exchange rate have reduced the likelihood that higher interest rates are required just yet. But equally, the overheating housing market and the looming Canterbury rebuild make it seem rather unlikely that lower rates would be best. On balance, I assign the greatest probability to 2.5%.
Dave Taylor Inflation remains low and several key sectors especially manufacturing continue to struggle. The situation is also compounded by a stubbornly high dollar. Therefore interest rates could be reduced to provide additional stimulus.  Auckland house prices are being influenced primarily by lack of supply rather than the OCR and therefore this should not influence OCR decisions at this moment.
Christoph Thoenissen No comment
Stephen Toplis No comment

About the NZIER Shadow Board

The NZIER 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 Wednesday 13 March, ahead of the RBNZ’s March MPS. Past releases are available from here.
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 Shadow Board aims to:

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

For further information please contact:
Dr Kirdan Lees, Senior Economist & Head of Public Good Research,
04 494 7960, 021 264 7336


January 2013 NZIER Shadow Board.pdf406.41 KB