NZIER’s Shadow Board recommends the RBNZ holds this Thursday

26 April 2016

NZIER’s Monetary Policy Shadow Board recommends the Reserve Bank holds the interest rate at 2.25 percent in its Official Cash Rate announcement this Thursday.

“The Reserve Bank surprised many by cutting the OCR by 25 basis points at the March meeting. Inflation remains very low, in contrast to the continued lift in house prices. Indeed, the strengthening in house prices is broadening beyond Auckland” said Christina Leung, Senior Economist at NZIER.

“The Shadow Board sees balanced risks to the current level of interest rates. Continued low inflation and the recent rebound in the New Zealand dollar would suggest the need for lower interest rates, but the Reserve Bank will be concerned with the increased financial stability risks from strong house price inflation. As such, the Shadow Board sees a 2.25% OCR as the most appropriate setting for interest rates.”

The Shadow Board’s average recommended interest rate fell from 2.43 percent to 2.23 percent, largely reflecting the March OCR surprise.

Figure 1 NZIER's Shadow Board recommends no change in the OCR on Thursday

Source: NZIER Monetary Policy Shadow Board

Figure 2 Individual participants' recommended rate settings - 22 April 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 The latest MYOB Business Monitor showed SME confidence in the wider economy improved during the past six months, up from net negative 30 per cent to net positive 5 per cent. Revenue expectations are up – as is work that is already booked – pointing to increasing growth. However, we think the Bank will hold rates, even as the dollar strengthens and dairy prices improve, because headline Inflation is still so low.
Arthur Grimes I see no reason to change the OCR at this time. The economy is finely balanced between excess demand and a potential slackening in growth, so it is best to wait and see what eventuates before changing monetary settings.
Dominick Stephens No comment.
Kirk Hope No comment.
Viv Hall No comment.
Stephen Toplis We believe the RBNZ will cut rates in response to the strengthening NZD but we don’t believe it should. Sure, inflation is low and will stay that way but growth is solid, capacity constraints are becoming more binding, the housing market is going nuts and credit growth is accelerating.
Dave Taylor No comment.
Prasanna Gai No comment.

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 June 2016, ahead of the RBNZ’s OCR Review. Past releases are available from the NZIER website:

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, 021 992 985