NZIER’s Shadow Board believes current conditions warrant no change in OCR

07 August 2018

New Zealand Institute of Economic Research (Inc)
Media release
For release 10am Tuesday 7 August 2018

NZIER’s Monetary Policy Shadow Board continues to see little need to change the Official Cash Rate (OCR) ahead of the Reserve Bank’s Monetary Policy Statement on Thursday.

“Although inflation pressures are rising, this largely reflects an increase in costs for businesses. Businesses remain downbeat, clouded by continued uncertainty over the effects of new Government policies. Deteriorating profitability means businesses have become more cautious, and there remains little urgency for the OCR to increase” said Christina Leung, Principal Economist at NZIER.

“The recommendation remains firmly centred on no change to the OCR, but with a slightly higher tightening bias. With inflation pressures rising here and globally, there is general agreement amongst the Shadow Board that interest rates will have to go up eventually.”

Figure 1 Slightly higher tightening bias, but view firmly centred on unchanged OCR

Source: NZIER Monetary Policy Shadow Board

* distribution may not add up to 100% due to rounding

Figure 2 Individual participants’ recommended rate settings – 1 August 2018

Source: NZIER Monetary Policy Shadow Board

Table 1 Participant comments

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

Carolyn Luey We think the Reserve Bank ought to hold the OCR steady with general business sentiment currently in negative territory. It needs room to move in the future if actual economic activity drops on the back of the deteriorating business outlook.
Arthur Grimes Monetary policy settings need to be made with respect to a forecast horizon of 1-2 years ahead. Inflation in a number of other countries is picking up and it will do so in NZ over this time horizon. Combined with current historically low interest rates, a slight tightening bias is warranted.
Dominick Stephens No comment.
Kirk Hope No comment.
Viv Hall Non-tradables inflation continues to creep upwards, but not sufficiently to justify an OCR increase just yet.
Stephen Toplis Core inflation has risen and is highly likely to rise further. Nearly every business we talk to says there is now upward pressure on input costs. Wage pressures are rising. Fuel prices have held up. The NZD is drifting lower. The pressure to hike has thus risen noticeably.
Prasanna Gai No comment.
Kerry Gupwell I see no reason to change the current rate as yet. Conditions remain broadly the same; low inflation, slowing growth and falling business sector confidence and persistent uncertainty over the impact of government policies.
Jarrod Kerr Simply no need for the RBNZ to change policy, with a rate hike a story for 2019. Concerns around business confidence have developed. Meanwhile underlying inflation is strengthening. Tradables inflation is higher on a weaker dollar and higher petrol prices. Domestically, rising wage inflation has been set in train thanks to a large minimum wage hike, with more to come.

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 25 September 2018, ahead of the RBNZ’s OCR Review. Past releases are available from the NZIER website:

hadow 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, Principal Economist & Head of Membership Services, 021 992 985