NZIER’s Shadow Board considers an OCR of 1.75% as still appropriate

21 March 2017

New Zealand Institute of Economic Research (Inc)
Media release
For release 10am Tuesday 21 March 2017

NZIER’s Monetary Policy Shadow Board recommends the Reserve Bank leaves the Official Cash Rate on hold this Thursday at 1.75 percent. The Shadow Board continues to see a tightening bias as appropriate.

The New Zealand growth outlook remains solid, with signs underlying inflation pressures are lifting. This suggests little need for further interest rate cuts. But there is no need to rush into rate increases. Downside risks from global developments suggest the Reserve Bank should adopt a wait and see approach, with any tightening likely to be some time away” said Christina Leung, Senior Economist at NZIER.

The Shadow Board recommends the Reserve Bank continues to leave the OCR at 1.75 percent this Thursday. Inflation is picking up from a low base and with capacity pressures expected to broaden beyond the construction sector, we expect the Reserve Bank to keep the OCR on hold until mid-2018 before embarking on a measured tightening cycle.”

The Shadow Board’s average recommended interest rate remained steady at 1.79 percent.

Figure 1 NZIER’s Shadow Board recommends the Reserve Bank remains on hold, with a slight tightening bias

Source: NZIER Monetary Policy Shadow Board

Figure 2 Individual participants’ recommended rate settings – 15 March 2017

Source: NZIER Monetary Policy Shadow Board

Table 1 Participant comments

Carolyn Luey We think the RBNZ should hold the OCR, even though the economy is going well and inflation is ticking up. Borrowing costs for SMEs are starting to rise as banks pass on lending costs, plus dairy prices have dipped.
Arthur Grimes Inflation is comfortably within the target band for the near future so there is no immediate pressure for an OCR change. Longer term, a rise in interest rates from current low levels will be required, and it would be useful to start conditioning expectations of a future increase.
Michael Gordon Inflation will be boosted by some temporary factors in the March quarter, but is still more likely to linger in the lower half of the target range over the next year. There is no urgency for the RBNZ to reverse its recent OCR cuts.
Kirk Hope No comment.
Viv Hall No comment.
Stephen Toplis While we can see why the cash rate might be kept where it is we, equally, do not share the central bank’s view that risks to the outlook are evenly balanced. We believe inflationary risks are rising and that conditions thus warrant a formal tightening bias.
Dave Taylor No comment.
Prasanna Gai No comment.
Zoe Wallis The domestic outlook for the NZ economy remains robust and inflation is now comfortably heading up towards 2%. However, numerous international risks on the horizon warrant a cautious approach toward eventually lifting the OCR.

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 9 May, ahead of the RBNZ’s Monetary Policy Statement. 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, 021 992 985